As you gear up for the 2002 tax season, there's probably little you wouldn't do to make your life easier. And that's just what the IRS is hoping for with its new Free File program.
Sign up with one of 17 services offering Free File, which allows taxpayers to file their taxes electronically for free, and you can not only avoid the fee typically associated with e-filing, but also give yourself a better shot at getting a faster refund. Through the IRS' Web site, taxpayers are connected to the tax-preparation companies participating in the program. Each company has different criteria for e-filing, ranging from age to income. You can determine which services you're eligible for by either browsing through the list of requirements for each company or by using the Free File Wizard, a questionnaire that assists in identifying the free services for which you may qualify.
"Free filing or e-filing will produce a more accurate return that will not subject the taxpayers to IRS notices on mathematical problems," says Walter R. Knepper, a partner with Rubin Brown Gornstein & Co. LLP, a St. Louis accounting and business consulting firm. "They will result in faster refunds of 10 to 14 days compared to four to six weeks."
E-filing in general has a smaller margin of error. "The accuracy rate of e-filed returns is higher than that of paper returns because you've eliminated the data-entry processing at the IRS," says Tom Linafelt, communications manager for Kansas City, Missouri-based H&R Block, a Free File Alliance member. "The IRS estimates that e-filed returns are 99.5 percent accurate while paper returns are about 80 percent accurate."
Despite its many benefits, Free File is not for everyone. "Free File is limited to certain incomes and will not handle certain schedules, deductions and credits," Knepper says. "Certain deductions, such as the first-year expensing allowance and credits, may be missed by a small-business owner if they do not consult a professional tax preparer."
In addition to filing their own taxes, small-business owners can also do employment tax filings online. PayCycle Inc., a Palo Alto, California, Internet payroll services provider, has partnered with the IRS to let its clients do one-click filing of their quarterly returns. "When a quarterly return comes due, our customers will get an e-mail from us telling them it's time to file returns, they'll click on that link, they check a box that says 'Send to the IRS,' and once they check that we'll take care of filing it directly," says Rene Lacerte, CEO of PayCycle.
To see if you qualify for Free File, or for more information on other e-filing options, visit www.irs.gov.