This week, Gail explains how to get free (!) software to file your taxes via the internet.

Hi Gail —

I'm trying to get a jump on filing my income taxes this year so I'm not sweating it come April. I know there's a way to file online, but I've never done it before and I'm concerned about my personal information getting in the hands of some hacker.

What can you tell me about this?



Dear George,

Getting more people to file electronically instead of via paper returns is a top priority of the Internal Revenue Service. Eliminating the "paper" work (literally) saves time and money and generally results in more accurate returns because a computer instead of a human is doing the math.

I won't promise the IRS will send you a Valentine if you submit your 2004 taxes via the internet, but if you are due a return, you’ll definitely get it faster than if you take the snail mail route.

Electronic or "e" filing is getting more and more popular every year. According to the IRS, last year 14.6 million taxpayers filed their returns from their home computers — up 22 percent from the year before. But another 46 million had their returns electronically submitted by their tax preparers.

So your first decision is: Do you want to do this yourself or would you rather have a professional fill out the forms and send them in on your behalf?

Before you answer that, you owe it to yourself to check out the free tax filing software available via the IRS website. (Pinch me, Mabel! Did she say free? And from — of all places — the IRS?!)

To encourage people to file electronically, the IRS developed a partnership with private software providers — companies such as CCH, H&R Block, TurboTax and a dozen other firms.

The terms require the members of this "Free File Alliance" to make their on-line tax preparation programs available to at least 60 percent of all taxpayers — so there's a good chance you're among the 78 million who qualify. Each company sets its own eligibility requirements. While most make their software available based on your income or the size of your expected return, others only cover residents of certain states. However, a couple of companies have no restrictions at all. All active duty military personnel are eligible for the Free Filing. This includes those serving in the armed forces and the National Guard.

(Of course, if you're on active duty in a designated combat zone, in a contingency operation, or are hospitalized outside the U.S. due to an injury sustained in a combat zone or contingency operation, you don't have to worry about the April 15 deadline: you can postpone filing your tax return until 180 days after you leave the combat zone/contingency operation, or are discharged from the hospital. Moreover, for every month you are stationed in a designated combat zone, all military compensation for that month- even if you're only in the combat zone for one day of the month — is exempt from income tax, up to the highest rate of enlisted pay.)

The beauty of using e-file or any other tax software is that you don't have to do the math. All you do is enter the information in the appropriate spaces. Plus, there are other benefits:

— As mentioned, you get your refund faster — especially if you allow the IRS to deposit the money directly into a bank account.

— You get an electronic confirmation that the IRS has received your return.

— You save the postage and the hassle of waiting in those ridiculous lines on April 14.

— You can "sign" an electronically submitted tax return by using a PIN number that you create.

— If you owe tax, you can pay via credit card (think of all those airline miles you’ll get!) or by authorizing the IRS to debit your bank account. Last, but certainly not least, you can do your taxes any time of day, any day of the week and in your pajamas if you so desire!

As for as your security concerns, George, the IRS says it has approved the software provided by each company in the Free File Alliance and your return is transmitted via "the established IRS e-file system." Federal law prohibits members of the Alliance from using your personal information in any way. If you fill out and submit your tax return yourself, you should know that IRS rules "prohibit the use of permanent internet cookies... No information about you is maintained as a result of a temporary or session cookie."

Look at it this way: since the IRS wants more and more taxpayers to file electronically, it's in the agency's best interest to ensure that people are confident their financial information is secure. There’s a wealth of information on electronically filing your tax return on the Internal Revenue Service Web site: www.irs.gov . Just click on "Free File." This will also take you to links to all of the companies participating in Free File.

As an added bonus, if you live in either the District of Columbia or one of 37 participating states,* your state tax return is automatically submitted when you e-file your federal return.

Just one caveat: Free File isn’t for everyone. It is designed for taxpayers with modest incomes and relatively straightforward returns. If your tax return tends to be more complex — for instance, you claim a lot of specialized deductions, or have self-employment income, or rental properties, or are subject to the Alternative Minimum Tax — you’re probably best served by using a competent tax professional. But even if you opt to pay someone else to prepare your taxes (remember: it’s deductible on your 2005 return), they can still file electronically on your behalf. That is, assuming your tax preparer has the right software.

Hope this helps,


*Alabama, Arizona, Arkansas, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Utah, Vermont, Virginia, West Virginia, Wisconsin.

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