Phone, computer, paper: Tax filing options abound


March 24, 2002|By Eileen Ambrose

MORE THAN half of the 130 million taxpayers expected to file federal returns this year have yet to do so, and if you're one of them, you may still be wondering which is the best way to file.

You can stick to old-fashioned paper, pencil and eraser, or file via computer or over the telephone if eligible. Maybe you should hire someone else to do the job.

Within these options are more choices. For instance, do you buy tax-preparation software or pay a Web site to use its software? What do you look for when hiring a tax preparer?

Here are some of your options;

TeleFile. With this, taxpayers file returns using a telephone keypad. It's fast, usually 10 minutes, and it's free.

But it's by invitation only. To be eligible, you must receive a purple TeleFile booklet from the Internal Revenue Service, usually sent to those with simple returns and incomes of less than $50,000, said IRS spokesman Sam Serio in Baltimore.

Electronic filing. You can buy a software program to file your return over the computer, visit a tax preparer who will do it for you or try one of the many tax Web sites posted by the IRS at

Fees vary. Some companies provide free electronic preparation and filing for low-income taxpayers. Other filers can pay as little as $7 for a federal return, up to $50 or even more.

Some companies will e-file state tax returns free if they handle your federal return; others charge extra for state taxes.

(Marylanders can file state tax returns free at or by visiting one of 20 state field offices, where their returns will be prepared and filed electronically for them. Refunds can be directly deposited into bank accounts within 48 hours after the state processes the return. For information on field offices, call 410-260-7980 in Central Maryland or 800-MDTAXES elsewhere.)

This type of filing has advantages. Electronic returns have fewer errors, and the IRS confirms within 48 hours that your return is received, experts said. You don't have to file any paper, including a W-2, though you should hang on to documents in case you're audited.

Refunds arrive sooner, too, with e-filing. You can receive a federal refund in 10 days or less with direct deposit or within two weeks without direct deposit, Serio said. A refund for a paper return usually takes four to six weeks, although it could be longer the nearer you file to the April 15 deadline, he said.

If you owe money to Uncle Sam, you can pay by check before the deadline or have the IRS debit your bank account April 15 or earlier at no cost, Serio said.

You can also use a credit card, though you will pay a fee of 2.5 percent of the amount charged. You'll also owe interest on your card if you maintain a balance.

E-filing might also reduce the demand for expensive refund anticipation loans among filers with bank accounts, some said.

The loans, based on expected refunds, usually last about 10 days and cost $29 to $89, making the annual interest rate 67 percent to 774 percent, according to a report by the Consumer Federation of America and the National Consumer Law Center.

Though often marketed as a quick refund, these actually are loans, said Valerie Coffin, a national researcher with the community activist group ACORN in Baltimore. Filers who tend to take out refund anticipation loans are often low-income taxpayers who can least afford the high cost, she said.

Some filers get the loan the day they apply or the next day. Others wait as long as two weeks, she said. If the IRS determines that the refund is smaller than expected, the filer must make up the difference, she said.

"People don't know enough about their options," including that low-income and elderly filers can get their taxes prepared, and often electronically filed, for free, Coffin said. To find locations for free help, call the IRS at 800-829-1040 or ACORN at 410-752-2228.

Last year, 31 percent of returns were electronically filed. The federal government's goal is to have 80 percent of returns filed via computer by 2007 as a way to reduce costs and paperwork. As an incentive, President Bush recently proposed giving electronic filers an extra 10 days to file.

To those worried about sending detailed financial information electronically, Serio says it's safe. Information sent to tax preparers over the Internet is encrypted, and that information is forwarded to the IRS on a private, secure system, he said. The IRS hasn't had a security violation since electronic filing began in 1986, he said. Still, for some those assurances might not be enough.

"Everyone has to set their own comfort level," said Kate Rears, a policy analyst with the Electronic Privacy Information Center in Washington. Online privacy violations have occurred in commercial ventures, though there have been fewer breaches involving the government, she said.

Rears, 21, said she is filing a return for the first time this year and expects to do it electronically, but her mother will mail in her return because of worries about security.

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