With a Spring Break trip to Chicago around the corner, Ball State University senior Megan Riecke looks forward to filing her taxes in the next two weeks and getting her refund check for shopping.
But unlike the past few years, she won't be filing her tax return by telephone using TeleFile.
The U.S. Internal Revenue Service stopped the program this year because of a decrease in demand due to the rise in tax preparation software and Internet use. Instead, Riecke is turning to the IRS's Free File program. The IRS estimates that 93 million taxpayers are eligible for the new program because their adjusted gross incomes are less than $50,000.
"I think it's great that they offer it for free for people with lower incomes," Riecke said, "because they're not usually the type of people who are going to be able to go out and purchase stuff you'll use only one time a year."
Riecke is one of a growing number of individuals nationwide who are turning to electronic filing. Experts say filing taxes online has grown in popularity during last year because of its convenience, the lower risk of errors and the faster refunds.
Last year, more than 68 million Americans filed electronically - the first time more taxpayers performed e-filing than filing by mail. While the IRS received 30 million electronic tax returns last year, it is striving to increase that number by 3.6 million this year.
Senior Tuyen Huynh, who filed online for the first time last year, said he planned to use the Free File program this year. His refund check will go toward his Spring Break cruise to Jamaica.
"Students' incomes are not that high," Huynh said. "Why not take advantage of the system?"
THE GOOD AND BAD
The biggest benefit of filing electronically is having a return processed faster and having fewer processing errors, said Elsa Wenzel, an editor who reviews tax software at CNET Networks Inc.
"If you file by paper, someone at the IRS needs to manually type in your return, which could lead to typos and delay the process," Wenzel said.
In fact, taxpayers have a 1 percent error rate with e-filed returns versus a 20 percent error rate with manually filed returns, said Julie Miller, spokeswoman for Intuit Inc., which produces leading tax software TurboTax. Getting a refund also takes seven to 10 days with direct deposit versus four to six weeks if a return is filed by mail, Miller said.
However, some people choose not to file online because they are unwilling to pay the modest fee, and some are reluctant to give the IRS additional information in an electronic format, said John Ledbetter, Ball State assistant professor of accounting.
"They are concerned that the government may not adequately safeguard against security breaches involving identity theft," Ledbetter said. And spyware on a person's computer could track every key he or she types, Wenzel said.
That's the main reason Ball State junior Jason Lipps chooses to have his taxes filed at H&R Block in Indianapolis.
"I'm not comfortable doing it online because I don't what that information on the Internet," Lipps said.
HOW TO FILE
Whether filing manually or online, students must have information returns such as W-2s and 1099s from banks. Students should also keep their statements of student loan interest, Wenzel said.
"Keep all proof of any income you made, whether it's a year-end statement from an employer, a copy of a babysitting check or a handwritten receipt from the neighbor whose dog you walked," Wenzel said. "More college students are starting their own businesses, so save all of your receipts."
Students need to also remember that the tithes they pay at church or their charitable contributions are tax deductible, said Denise Sposato, spokeswoman for H&R Block.
In addition, students need to look for accuracy, cost and ease of use when choosing tax preparation software, Ledbetter said.
Although TurboTax by Quicken is the leading tax preparation software, TaxCut by H&R Block and TaxACT aren't too far behind. Both TurboTax, which has about 75 percent of the market, and TaxCut are available in retail stores and are simple programs that use an interview process to obtain information for filing tax returns.
Sposato said TaxCut software starts at $9.95, while TaxCut Online starts at $5.95 to complete a return, with free e-filing.
TurboTax software is $40 including federal and state products, but e-filing is an additional $14.95. TurboTax Online starts at $20 for a federal return, Miller said.
TaxACT is the cheapest of the three but does not allow financial information to be imported from personal programs. Still, those eligible for the IRS Free File program can use TaxACT Free File to prepare their federal taxes. A state return costs an extra $12.95.
Despite its convenience, using tax software or online services still requires a lot of thought and care, Wenzel said. For students filing for the first time, elicit the help of a tax software support person, family member or tax adviser to review a return before sending it to the IRS, she said.
"The computer can crunch numbers better than the human brain, but it can't do all the work for you," Wenzel said. "Make sure that the tax programs you use has a good phone support plan in case you want to talk to a person for help."
OTHER OPTIONS
Junior Liz Battisti always allows her father do her taxes for free because she is not sure how to do it, she said.
"If I did it myself, I would have to go to H&R Block or something," Battisti said. "I'd have to spend money on that."
Although taxpayers spend as much as $140 on average at H&R Block, Lipps still likes having the professional do his taxes so that the filing gets done correctly, he said.
But regardless of how students choose to file, they should realize that by not filing, they miss out on refund money. The average refund for the college-age group is about $900, Miller said.
Wenzel said students who file their own taxes can also assess their own financial health and plan for a better future - especially students with high debt from student loans and credit cards.
"It shows you how much you really make after taxes, how much you spend and how important it is to stay organized and save your financial paperwork," she said.
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