Don't Mess With Taxes

The IRS began accepting electronically filed returns yesterday, Jan. 15.

The big e-file news for the 2010 filing season is what can't be submitted via cyberspace.

Anyone claiming a homebuyer credit, either the $8,000 for first-time residence buyers or the $6,500 version for move-up primary property purchasers, will have to send in their 1040 and associated credit Form 5405 by snail mail.

That, of course, is going to slow down any refund you might get. Even worse, the IRS is not going to even start processing these paper forms until mid-February. The agency says it needs the extra weeks to make sure its systems are set up to deal with the homebuyer credit's new provisions.

The bottom line is that early filers hoping to get their credit-related refunds will now get them about two to three weeks later than they would have under normal filing circumstances.

Slowed down by fraud checks: The main new provision that is slowing down the IRS' work and affected homebuyers' refunds is the verification requirement.

The law that expanded and extended the credit last November also included tougher proof provisions to ensure that fraudulent homebuyer claims aren't paid.

Now homebuyers seeking the credit must send in documentation, such as a copy of an executed settlement sheet, before the IRS will accept the credit claim.

And right now, the only way for the IRS to get that documentation is the old-fashioned paper form.

"Within three years we will have the ability to take in documents in PDF format, that is you can scan and attach it when e-filing," said David R. Williams, director of Electronic Tax Administration for the IRS, in announcing this year's Free File program. "But for now, to make sure we're paying the homebuyer credit correctly, we're gong to have to take that information on paper."

Free File is up and running: For other filers, though, e-filing is underway. And if you qualify for the IRS' Free File option, that program also opened its e-doors Friday.

There's not much new with Free File. The eligibility income threshold is a bit higher. If your adjusted gross income last year was $57,000 or less, regardless of you filing status, you can use Free File this year.

Nineteen software companies offer services at the special IRS Free File site. Three of them provide tax prep and filing material in Spanish.

Each company sets its own eligibility criteria, typically based on state residency, age, income or military service. Speaking of home states, several providers also offer state tax preparation, but fees might apply here.

Once you get to the Free File site, which you must do by going to the IRS home page and then clicking the Free File icon, you can peruse the list of software participants or get some assistance choosing a provider by clicking "Help Me Find a Company."

Fillable tax forms return: The IRS also is once again offering Free File Fillable Forms, available to any filer regardless of income.

The fillable forms format, also accessible at the Free File Web page, is the same as last year. The IRS makes electronic reproductions of its forms available for taxpayers to complete from their computers.

Although the forms will do the math for you, there is no software associated with the fillable versions, so you must know what amounts and info to type into the document.

Then you can file it at no cost.

Additional e-filing thoughts: In advance of the Free File announcement yesterday, I posted some thoughts on the current e-filing system at my other blog, Eye on the IRS.

I don't want to give too much away here, but I will say that if Uncle Sam really wants us all to e-file, he should reward us for doing so.

Contests a-coming! Now that the electronic filing season is open, we're going to make it even easier for you. Several software manufacturers have offered their products for me to give away to Don't Mess With Taxes readers.

The first one will kick off next week, and I'll be posting details about the giveaway soon.

• The IRS' electronic future
• TurboTax's Timothy Tweaks
  
• EFTPS 'R' Us
• Of online filing and fees (Eye on the IRS)
• Getting the most from tax software (Bankrate.com)
• Ways to electronically file your return (Bankrate.com)

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