NEW YORK (CNN/Money) -
Three days and counting until the taxman comes knocking on your door. If you haven't filed your tax return just yet, there's still time. But why not avoid waiting on line at the post office to mail your return, when you can do it electronically?
Running out of time? Here are today's five tips to e-filing.
1. Get online with e-filing.
E-filing is popular. Out of 81 million returns filed through April 2 (the latest data from the IRS), more than 48.5 million were submitted through e-file -- up 12 percent from a year ago.
Broken down: home computer filers submitted more than 11 million returns electronically, an increase of 21.3 percent from a year ago and tax professionals filed more than 34.2 million returns online -- up 13.7 percent from last year.
Congress is pushing for 80 percent of all tax returns to be filed electronically by 2007. As a result, it has been working with the Internal Revenue Service to initiate new programs, such as the IRS's Free File Alliance. That's right, free tax filing. The program is an alliance between the IRS and a group of 16 software companies, offering free on-line tax preparation and services to taxpayers.
To find out if you qualify for free tax prep, log onto www.irs.gov and click on the Free Online Filing page. Click "Start Now" and you will be linked to a list of the available companies you can file through.
The partnership calls for the alliance to make this service available for at least 60 percent of all taxpayers or approximately 78 million individuals who file an individual tax return.
However, each participating software company has its own eligibility requirements. Most of the companies have income requirements, but some also have age and residency restrictions.
For example, to file through Braman Tax Services for free, you must have an adjusted gross income of less than $40,000 and be filing a 1040EZ. The 1040EZ is your basic tax return for single and joint filers with no dependents, no itemized deductions, and less than $50,000 in taxable income. Meanwhile, TaxACT.com has no restrictions and every taxpayer qualifies.
You can also buy software like TaxCut and TurboTax. This software lets you enter all the data on your computer, then file electronically or print a tax form and drop it in the mail. Prices for this software can range from $15.00 to near $70.00, depending on how high-end you want to get.
2. Take advantage of the benefits.
There are several benefits to filing online. For one, if you are entitled to a refund, chances are you will receive it much faster, especially if you opt for direct deposit. The refund could arrive as early as 10 days. With paper returns, it can take six to eight weeks!
Among other pluses is the accuracy. The IRS computers automatically check for errors or missing information. The IRS will send you back a confirmation electronically of whether they accepted or rejected your return because of a mistake.
Grace Weinstein, author of "The Procrastinator's Guide to Taxes Made Easy," says you also have better accuracy because you don't have IRS clerks entering the data from your paper return into their computers. It cuts down on human error.
Also, when you mail a paper return, you have no way of knowing if the IRS received your return unless you pay extra for a return receipt. But when you file electronically, you receive an acknowledgment that the IRS has received it and whether it has been accepted or rejected.
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Meanwhile, taxpayers in 37 states, 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, Rhoda Island, South Carolina, Utah, Vermont, Virginia, West Virginia, Wisconsin, and the District of Columbia can e-file their federal and state tax returns in one transmission to the IRS.
The IRS then forwards the state data to the appropriate state tax agency. Last year, more than 22.7 million taxpayers filed federal/state electronic returns.
For additional information on filing your state return, log onto the Web site for the company you chose within the Free File Alliance, not IRS.gov. You may also want to check your own state's Web site.
3. Be wise.
Weinstein says she sees two potential problems with the IRS alliance program. One is the income limitation for some of the software companies in the alliance. And the other is some of the companies have been making product pitches to taxpayers based on the information in their tax return.
For example, a company may offer you an IRA, mutual fund or a mortgage for a fee. The IRS says if you choose the Free File Alliance, you may want to browse other products and services the companies offer, but taxpayers are under no obligation to buy any of these.
Taxpayers also have some options when paying taxes electronically. Among them are authorizing an electronic funds withdrawal from a checking or savings account or by using a credit card. Electronic funds withdrawal is free and the taxpayer decides when the tax payment is withdrawn from the bank account.
Last year, taxpayers who paid through electronic funds withdrawal increased by 48 percent over the prior year. This service is only available to those who e-file, either by computer or by phone. More on filing by phone in a moment. But, first, the downsides of paying by credit card.
Whether you file your taxes virtually or the old-fashioned way, you've always been able to put your tab on plastic. In 2003, taxpayers paying by credit card jumped nearly 80 percent from a year earlier. But there is a catch.
Grace Weinstein, author of "The Procrastinator's Guide to Taxes Made Easy" says "you should be aware there is a charge. The government doesn't charge anything extra. But the credit card companies may charge what they call a 'convenience fee,' which is up to 2.49 percent of the amount of tax you owe. That can be a fairly hefty amount and in addition to that you would have interest charges if you do spread the payments over time." The last thing you want to do is add to any existing credit card debt.
4. Sign on to electronic signatures.
With e-filing you no longer have to worry about forgetting to sign the form. Eligible taxpayers will be able to use a Self-Select PIN.
This method allows taxpayers to electronically sign their return by selecting a five-digit PIN as their signature. The five-digits can be any numbers except all zeros. It also requires the taxpayer's date of birth and the prior year's adjusted gross income.
However, you must qualify to sign electronically. Eligibility details are available on IRS.gov. If you are filing a joint return, two PINs are required, acting as signatures for both people.
Now, if the taxpayer still wants to file electronically, but does not want to use the PIN, no problem. He or she just has to sign Form 8453, the U.S. Individual Income Tax Declaration for e-file Return, and mail it to the IRS within three business days after the IRS acknowledges the return was accepted.
If you decide to file electronically through a an accountant, the option of signing electronically is also available. While not everybody has a computer, the IRS has made it possible for certain taxpayers to file their tax returns using a touch-tone phone and toll-free number. It is called TeleFile.
However, once again, this program is not for everyone. A TeleFile tax package is automatically mailed to those who qualify. To qualify, you must have filed a 1040EZ the previous year. The tax information is entered over the phone in about 10 minutes and the system does the math for you.
As far as signing these returns, the tax package you receive has a customer service number that you must enter into the phone when the TeleFile system prompts you. Entering this takes the place of "signing" your name on Form 1040EZ. However, of all the IRS's e-filing receipts so far this year, TeleFile is the only area that has seen a decline from a year ago as more and more people are turning to their computers.
5. Feel safe.
The IRS is making efforts to ensure your privacy and security concerns are addressed when filing electronically. The IRS requires participating companies obtain both privacy and security seal certifications.
These are certifications provided by third parties that make sure your tax return information is protected. As part of the agreement the Free File Alliance companies will not share your data with anyone besides the IRS.
One final word of advice whether you are filing on paper or electronically. If, over the course of the year since you last filed, you experienced a major change such as a divorce, an inheritance or even moved to another state, you may feel more comfortable dealing with a tax professional. And of course, your tax preparer can file electronically for you.
Gerri Willis is the personal finance editor for CNN Business News. Willis also is co-host of CNNfn's The FlipSide, weekdays from 11 a.m. to 12:30 p.m. (ET). E-mail comments to email@example.com.