Hot tips for electronic filers

How to save time and money filing your taxes online

If you travel the e-route to prepare and file your taxes, you can reap some attractive benefits. Refunds from electronically filed returns have been processed in as little as 10 days, compared with four to six weeks for mailed returns, according to the Internal Revenue Service.

Whether you hire a tax professional to prepare the forms or use a store-bought CD, software download, or online tax-prep program, there's less likelihood of errors and sinister follow-up letters when you e-file. That's largely because IRS employees don't have to re-enter your data. You also get near-instant notification when your return has been received and accepted. And if you arrange for the electronic transmission of your refund or payment, you reduce the chances the money will be lost or stolen en route.

Despite those benefits, you may still hold your breath after sending your forms into the ether. Here's information to set your mind at ease.

Speed

The fastest refunds will go to those who file electronically and arrange for direct deposit. Major tax-prep software packages—Intuit's TurboTax, H&R Block's TaxCut, CompleteTax, and TaxACT—also let you split your refund among three accounts, a relatively new IRS option.

Savings for online prep

If your 2008 adjusted gross income was $56,000 or less, you can take advantage of the IRS’s Free File program, which connects taxpayers with companies that offer free federal tax prep and filing.

For the first time, the IRS is providing free fillable federal forms for those who don’t need a guided tour through their 1040. The forms have links to salient IRS publications, and perform automatic computations on your numeric entries. Once you’ve filled out your federal form, you can file for free directly to the IRS. Access the fillable form through Free File on the IRS Web site.

All the major purveyors of tax-prep software and online services are offering free e-filing this tax season, regardless of your income. Intuit’s TurboTax also offers free tax prep to folks who need only the most basic forms. Second Story Software’s TaxACT provides free federal prep to a wider audience, including self-employed people who need to fill out Schedule C (we haven’t tested this tax-prep product). Both of these services make their money on taxpayers who need to prepare and file state forms.

For those who prepare and e-file one federal and one state return, Intuit has priced the online versions of TurboTax Deluxe, Premier, and Home & Business $15 to $40 lower than the identical downloads and CDs. (Conversely, H&R Block's online version of TaxCut Premium, including federal tax prep and free e-filing, costs $5 more than its software counterpart, and $19.95 more when a state return is included.) When we last tested those products, we found both of them to be suitable for simple returns.

Tax-prep companies also periodically offer discounts to online customers, and you may be able to find online coupons as well. You can try several online tax-prep programs, since many don't charge a fee until you file. But only CDs and downloads let you prepare multiple federal or state returns. The IRS limits electronic filings to five per software package.

Procrastinators beware: Intuit told us they expect to raise their prices for their online products April 1.

Security

The IRS maintains that the online tax-prep companies it deals with have met strict guidelines on privacy and security of transmitted and stored personal data. Consumer Reports WebWatch, which reviews Web sites for information privacy, looked at the privacy policies and third-party verification of four online tax-prep providers—Intuit, H&R Block, CompleteTax, and TaxACT—and found all of them to be in order.

Settling the bill

You can authorize the IRS to debit your bank account for any taxes you owe on the April 15 deadline, regardless of when you file. Avoid paying by credit card; you might be charged either a $3.95 flat fee or a "convenience fee" of 2.49 percent or more of your tax due. For more information, go to www.irs.gov and enter "pay taxes by electronic funds withdrawal" in the search window.