Tax Expert Gary Brennaman Why tax e-filing could be right for you and your business

Should you e-file your business taxes? Is it worth the learningcurve? We talked with Gary Brennaman, a tax product manager withPeachtree Software Inc., to find out if it's time for you to goelectronic with your taxes. Celebrating their 25th year inbusiness, Peachtree Software, a manufacturer of accounting softwareproducts designed specifically for small businesses, has sold morethan one million accounting software packages. Here isBrennaman's take on this new tax trend.

Entrepreneur.com: How didtax e-filing come about?

Gary Brennaman: NAFTA passeda federal law in 1996 that stated that the IRS had to begincollecting 80 percent of its revenue and 80 percent of its returnselectronically by the year 2007. And of course the IRS had been apaper-based organization, so it had to make a quick transition. Andon the payment side, that was fairly easy to do because it alreadyhas an electronic solution in place called E.F.T.P.S., and all itdid was really expand the functionality of that. However for returnfiling, it's a larger hurdle for the service to becomeelectronic, so its first approach has been to go after individualfilers because they're the largest number of filers, with 80million to 90 million tax returns each year. And then businessfiling was the next step, with about 10 million to 20 millionfilings annually.

		"Rightnow, it might be a little painful to get involved in it, but infive years, everybody will be e-filing theirtaxes."

Entrepreneur.com: Ise-filing fee-based or is it free?

Brennaman: Today there'sa cost involved. On the individual side, usually it's a smallcost-and in some cases it's a zero cost-but there's also anindirect cost, like if you do a Web-based filing that'selectronic. But I think the IRS has done a good job in buildingelectronic return functionality for the individual.

On the business side, it's more complicated because businesstax returns are much more complex. There's a lot moreinformation to be reported. The primary business tax forms aregoing to be broken down into three categories: corporate taxfilings for income taxes, partnership income tax filings, andemployment tax filings. The IRS doesn't want to be hit with alot of data all at once, so they've gotten into agreements withthird parties that will, for example, take return information fromhundreds of employers and batch it into one file and then transmitit at one time to the IRS. So for business tax filers, they'regenerally going to have to pay a third party a fee for doingthat.

Entrepreneur.com: Can anybusiness type (for example, a corporation vs. a soleproprietorship) do e-filing?

Brennaman: In some cases, itjust depends. There are certain filings that can be handledelectronically today and then others that are in pilot. Thecorporate income tax filing, the 1120 form, is in pilot forelectronic filing purposes, so that's not currently available.The 1065, the partnership income tax return, is also in pilot. Ithink those will probably be available next year. [Currently,]employers can file employment tax returns electronically.

Entrepreneur.com: Can youe-file your own taxes, or do you have to have an accountant orspecial software?

Brennaman: Generallyspeaking, you would have to purchase software. It's usually lowfees. There are a couple of vendors that have Web sites that willallow you to file for free. Really all it is is a spreadsheet or awork sheet on a Web site, where you type in your own informationand you hit a button and it files it. But most of those vendors arecapturing the information to use for marketing purposes. Sothere's an indirect cost in doing that.

Entrepreneur.com: What arethe pros and cons of e-filing? Obviously there's a speedfactor.

Brennaman: There's thespeed factor, and generally there are a lot fewer errors onelectronic filings because the software has built-in validitychecking that may not be available on paper-based forms. And forthe IRS, the cost is much lower, and it's probably a little biteasier to store the information for both the filer and the IRS. Thecons would be security issues and fraud. Fraud has been an issuefor the IRS because just up until last year, you had to sign yourreturns-they needed a physical signature. So that was a hurdle forthem to overcome. And finally last year they came up with digitalcertificates to handle that.

Entrepreneur.com: Is thereanything else our readers should know about e-filing?

Brennaman: Right nowit's a very fragmented industry. One of the problems is that alot of the governmental entities that require filing don'taccept electronic filing. [In the future, the trend will be that]the data required will become more common across differentgovernmental entities and therefore it will become a lot easier todo. Like you might just have to generate one file and you cansatisfy your federal, state and maybe local agencies with one file,whereas today you might have to generate three, four or five files.Right now, it might be a little painful to get involved in it, butin five years, everybody will be [e-filing their taxes.]