The IRS is trying to move the tax system from being paper-based to being electronic.

To do so, it is making it easy for individuals not only to file their tax returns electronically, but also to manage both their personal and business taxes on-line, all year ’round.

If you file your return electronically this year, consider moving on to make full use of all the IRS’s expanding electronic tax-management options.

THE PLACE TO START

Electronic services for filing season were the first to be created by the IRS…

  • E-filing. This is the IRS’s electronic option with which most taxpayers are familiar. In 2007, almost 57% of all individual tax returns were filed electronically (about 80 million returns).
  • You can file your tax return electronically by preparing it on a home computer using commercial return-preparation software or a Web site, and then sending it to the IRS over the Internet. Or you can have your return prepared by a tax professional, and have him/her file it electronically for you.

    Advantages: An e-filed return is computer-checked for mistakes before being sent to the IRS. This reduces by 99% the chance that there will be an error on it about which the IRS will contact you, and which will delay its processing. Refunds are paid faster on e-filed returns, as well. Refund checks are typically received approximately two weeks earlier than with nonelectronic filing.

  • Free file. Most individuals can prepare and file their tax returns electronically at no cost using the IRS-sponsored Free File program.
  • Free File is a partnership between the IRS and leading tax software firms that make their return preparation products available for free to taxpayers who have adjusted gross incomes of $54,000 or less — which covers about 70% of all taxpayers.

    The return-preparation products available through Free File are exactly the same as those you would pay for on your own.

    To learn more about Free File and to use it, click on the Free File logo at the IRS Web site, www.irs.gov.

  • Refund deposits. A tax refund can be deposited electronically into your bank account. In fact, you can now split an electronic refund to have portions of it sent to up to three different accounts, including an IRA.
  • Electronic deposit of your refund speeds its arrival, and eliminates the risk that a refund check will be lost in the mail or stolen.

    To obtain an electronic refund, follow the instructions on your tax return. You can file a paper tax return and receive an electronic refund.

    Best: The combination of filing electronically and requesting an electronic refund provides the fastest refund — in as little as 10 days, says the IRS.

  • Refund tracking. When a refund is due to you, you can check its status electronically by clicking on the “Where’s My Refund?” utility on the IRS Web site. It will tell you when your refund can be expected to arrive. In addition…
  • If a refund doesn’t arrive when expected, you can begin a “refund trace” on-line through the Web page.
  • If a problem is reported in delivering your refund to you, you can correct or update your address on-line.
  • ELIMINATE PAPERWORK

    Beyond filing personal 1040 tax returns and tracking refunds, the IRS now enables individuals to manage almost all their tax affairs electronically all year ’round.

    For instance, the forms you can now electronically file, either as an individual or if you own a small business, include…

  • Corporate and S corporation tax returns, Forms 1120 and 1120S.
  • Employment tax returns, Forms 940, 941, and 944.
  • Information returns, such as Form 1099 and others.
  • Employee wage reporting returns, Form W-2.
  • Partnership returns.
  • Estate and trust returns, Form 1041.
  • Again, electronic filing offers the advantages of a greatly reduced error rate and faster processing.

    With returns that have to be filed repetitively and frequently, such as employment tax returns, e-filing eliminates laborious paper handling and trips to the post office. It also cuts the risk that miscalculations or mailing delays will result in tax penalties.

    And for “batch” returns, such as W-2s and 1099s, electronic filing can greatly ease processing. For detailed information about e-filing each of these returns, at the IRS site click on the e-file logo, then on “Business and Self-Employed Taxpayers,” then on “Electronic Filing Options for Business Returns.”

    TAX PAYMENTS

    A payment accompanying a personal tax return or filing extension, or for quarterly estimated taxes or other personal tax bills, now can be made by electronic transfer from your bank account or by credit card.

    For details on how to arrange such a payment, at the IRS Web site, click on the e-file logo, then on “Business and Self-Employed Taxpayers” and on “Electronic Payment Options.”

  • On-line payment management. The greatest new convenience in year-round tax management is obtained by enrolling in the Electronic Federal Tax Payment System (EFTPS), to manage taxes on-line.
  • Using the EFTPS, you can automate tax payments, setting them up so that they are transmitted from your bank account automatically when you direct. You don’t have to do anything at the time — you may even be away on vacation.

    This lets you keep funds in your account until the last minute, earning interest — while ensuring that they will still be paid on time. Individuals can schedule payments up to 365 days in advance.

    Using the EFTPS eliminates the need to complete federal tax deposit coupons or vouchers, write checks, and transport checks with coupons or vouchers to the post office or to a financial institution that acts as a tax depository prior to the tax due date.

    The EFTPS also allows you to review and manage your tax accounts over the Internet from your computer, 24 hours a day, seven days a week, no matter where you are — at home, at work, or while traveling.

    The EFTPS can be used to make almost all kinds of tax payments, both personal and business (including corporate, employment, and excise taxes).

    Its benefits are especially valuable for repetitive payments, such as payroll taxes and personal quarterly estimated taxes.

    Using the EFTPS is free. Once enrolled, you can use it for all purposes. You can also use the EFTPS to make payments by phone.

    Enrolling in the EFTPS takes only a few minutes on-line. You will then receive a personal identification number and password from the IRS via mail in about 15 days. You can be using the EFTPS system to manage your tax payments as well as your tax filings that quickly.

    For more information about the EFTPS and to enroll in it, at the IRS Web site, click on the e-file logo, then on the EFTPS logo — or go directly to the EFTPS’s own Web site, www.eftps.gov.