Handling Finances

As I was finishing up my taxes for the year (using TurboTax) I was once again invited to e-file for the low, low price of $19.99.  I was indignant that the IRS should still be charging us to make their job of data entry easier… and then I learned that the IRS charges no fee for e-filing!  I still think it’s a horrible deal, but I’m not nearly as annoyed by the IRS as I used to be.

E-filing is actually a great idea.  It reduces errors as there’s one less time somebody has to type the numbers into a computer, it reduces cost as the IRS no longer has to pay that person to type numbers into a computer (not to mention the reduced mailing costs) and to top it off, the taxpayer receives proof that their tax information is received within 48 hours, and tax refunds are sent much faster!

 So why isn’t e-filing free?

TurboTax is asking me to shell out $20 on top of the $75 I already paid for the program (the basic version is much cheaper, but my convoluted and changing investment decisions require the more capable Premier version).  How can they get away with it?  Well e-filing is only available to a select group of tax preparers and taxpayers who make under $54,000 a year and prepare their taxes for free through www.irs.gov/efile

I assume that the IRS has good reasons to limit access to their e-filing program, and I appreciate that they offer it free to lower-income taxpayers, but since e-filing must be done through a tax professional, that means that most of us simply have to pay whatever our tax-preparers (or tax preparing software) charges.

Don’t Spend a penny on e-filing!

If you have your taxes professional prepared, you’re probably paying a couple of hundred dollars already and very often e-filing is included in the price.  If it’s offered as an option, however, it just doesn’t make financial sense to pay the preparers $20 to get your refund a month sooner!  Even if your refund is $2000, you’d have to be making 12% a year on your money to make e-filing worth the cost, and you’re further encouraging the tax preparers to charge for a service that costs them very little.

The simple solution is to do as millions of taxpayers have done for decades — send your tax returns by mail.  If I were to e-file through TurboTax today, I would be rewarding TurboTax for overcharging for this basic service and while I firmly believe they have a right to make money by charging for e-filing, I would rather pay more for the basic package than get hit with fees when I’ve finished my tax preparation.

There might be circumstances where you need your refund money ASAP which would make the e-filing a good option for you.  I just suggest that you keep track of your finances, and if you encounter similar emergencies year after year, consider changing your tax withholding and your spending habits instead of paying your tax preparer for the ‘privilege’ of receiving the yearly illusion of temporary financial relief.

This entry was posted on Monday, February 25th, 2008 at 6:32 am and is filed under Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.