Personal Planning Newsletters - February 6, 2006

Filing Tax Returns Electronically©

E-filing is fast and easy - and often free! That's why about half of American taxpayers do it. If you prepare your own return (or your child's, parent's, housekeeper's or friend's), we recommend that you e-file those federal and/or Ohio income tax returns.

You do not need to buy a computer tax program to e-file your returns. Conversely, even if you use a computer tax program (such as Turbo Tax*) to prepare your return, you do not have to e-file through that program. E-filing through your commercial program will incur a fee of about $15, even if you qualify for free filing under government programs.

Federal E-filing ("Free-file")

The IRS has partnered with a number of commercial tax return preparation companies, like Turbo Tax, to offer their preparation services and e-filing for free to qualified individuals. Qualification requirements vary with each company but generally include an adjusted gross income limit ($28,000 or $50,000) or active military duty. For free service, you must enter through the IRS website or the provider's Free-file website. If you download, say, Turbo Tax Basic or Premier, on your computer, prepare your return and click e-file, you will be charged to e-file even if you qualify for Free-filing.

The IRS Free-file connection is www.irs.gov/efile/article/0,,id=118986,00.html. This site gives you the list of, and links to, all participating commercial tax preparation services. They each have different qualification requirements.

Before starting with a service, be sure that you meet its qualifications for free e-filing.

The Turbo Tax Free-file connection is http://www.taxfreedom.com/. If you go to the main Turbo Tax or Intuit home page you will be asked to buy a product , like Turbo Tax Basic. Similarly, throughout your progress through your return on Tax Freedom you will be asked if you want to upgrade to basic, premier, etc. You can just say no. When you get to the end, you can decline audit check, professional review, etc. Select e-file. You will see a screen suggesting payment of a fee but will eventually be told that there is no charge because you qualify for Free-file.

If you do not qualify for Free-file, one company that offers a basic tax preparation and e-filing package for free is TaxAct. Go to http://www.taxact.com/ and click on the Standard service. The state version of TaxAct costs $12.95, which is very reasonable, but Ohio residents can I-file for free (see below).

Ohio E-filing ("I-file")

Some of the federal Free-file companies also offer free preparation and e-filing for your state return; others (like Turbo Tax) do not offer that service for free. The State of Ohio, however, offers its own free, easy-to-use I-file program, I-file. We recommend using Ohio I-file if (1) your federal Free-file program does not offer free state e-file or (2) you do not qualify for federal Free-file and are preparing your federal return yourself.

If you prepared your federal return from a commercial program other than Free-file (i.e., you bought a commercial product and downloaded it), run the state portion to produce an Ohio return to use as a guideline for entering the information on I-file, but do not file that Ohio return. Otherwise, just use as a guideline the federal return you have from your Free-file or hand-prepared return.

To I-file, go to www.tax.state.oh.us/PROD/IFileWeb. Register and follow the simple instructions, using your guideline return for the data you need.

Refunds and Payments

If you are expecting a refund, and file early, your refund can be direct deposited to your checking account in as little as 5-7 business days.

In many cases you can make a payment by direct debit from your account. Check a credit card company's fees and finance charges very carefully before using a credit card to pay your taxes; these can often exceed the interest and penalties** that the IRS and State of Ohio charge on late payments (provided that the return is filed on time).

If you are expecting a refund on one return but have to pay tax on the other, you can file the refund return now but wait to file the other return no later than April 17, 2006.

IRS Forms

IRS Forms can be found and printed for free at www.irs.gov/formspubs/index.html. These forms are non-fillable.

Questions? Contact 513-619-1683

* No endorsement of any particular commercial tax preparation product is intended. Incidentally, Turbo Tax no longer provides rebates for e-filing.

** The IRS interest rate is currently approximately 7.5% annually; a penalty of 0.5% per month is also applied. Therefore, if you file an automatic extension to file (Form 4868) by April 17, file your return on May 15, and at that time pay $1,000 of tax, you will owe about $6 interest plus $5 penalty. If instead you filed your return on April 17 and paid the $1,000 of tax by credit card, the credit card company might have charged a $25 processing fee plus 18% interest or $15. Extensions of time to pay tax are extremely rare.

This communication does not provide individualized advice and the information in it might not be appropriate for your situation. This communication is not intended to, and does not, cover all changes in tax and other laws that might be appropriate for your situation.

ANY FEDERAL TAX ADVICE CONTAINED IN THE FOREGOING IS NOT INTENDED OR WRITTEN BY THE PREPARER OF SUCH ADVICE TO BE USED, AND IT CANNOT BE USED BY THE RECIPIENT, FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THE RECIPIENT. THIS DISCLOSURE IS INTENDED TO SATISFY U.S. TREASURY DEPARTMENT REGULATIONS