Tackling Your Taxes: Man and machine

E-file technology is proving a boon to Jersey taxpayers

By KARIN PRICE MUELLER
STAR-LEDGER STAFF

You'd probably rather be plucking out your fingernails or cleaning the goo from around your toddler's car seat.

Yup. Tax time.

But what was once a very painful process is getting easier. You no longer have to subject yourself to paper cuts, pencil stains and long lines at the post office.

Thanks to technology, filing your taxes is easier than ever, and the Garden State is taking advantage. For the 2007 filing season, the IRS estimates more than 2.5 million New Jerseyans, or 59 percent, will e-file their returns, up from 55 percent last year.

Electronically filing your return is the fastest way to get your refund, whether you use a tax preparer, software or internet program. That's right — there's a pot of gold at the end of the paperwork rainbow for most families in the state. The IRS says about 75 percent of filers in New Jersey are expected to receive a refund.

And that doesn't count any rebate checks received from the recently passed stimulus package.

So, while you may not be looking forward to devoting your free time to going through receipts and income statements, if you've got money coming to you, why wait?

You may even be able e-file for free, through the IRS Free File program. Taxpayers with an adjusted gross income of $54,000 or less can use Free File. That covers some 60 percent of New Jersey filers, the IRS says. Free File is a partnership between the IRS and the Free File Alliance, a group of private-sector tax software companies. At irs.gov, you can access a list of authorized, free online tax preparation and electronic filing services.

If you don't qualify to file for free, there are still benefits to e-filing. The IRS says it cuts the delivery time of refunds in half. Plus, there are fewer errors. Twenty percent of paper returns have errors, compared with about 1 percent for e-filed returns, according to the IRS.

TAX-PREP SOFTWARE

If you earn too much to Free File, you can still e-file with take-home tax software. You can prepare your return using a variety of software programs, and still e-file with the IRS.

While there's no widespread study of which tax preparation software is the "best," reviews generally put Intuit's TurboTax and H&R Block's TaxCut at the top.

Tax software runs between $15 and $75, depending on the program. It's a bargain compared with the cost of a tax preparer, which could run from $150 to $500 or more, depending on the complexity of your return.

Choosing the best one for you is far from an exact science. You can compare features, but most programs offer similar, if not exactly the same, features. Much of the difference is in the look of the program and the way it asks you for information. An informal survey of tax software users found when taxpayers grew accustomed to a program, they tended to stick with it because they're comfortable with the layout and the data input methods.

But ask the companies that make the software, and you get a very different answer about their customers.

Scott Gulbransen, a spokesman for TurboTax, says his firm's program is easy and convenient. He says most Americans don't want to spend time crunching numbers or learning the tax code, and they want to get their taxes done fast so they can get their refund as soon as possible.

He says tax software can handle the majority of tax returns.

"It's unconscionable to charge someone $155 — like these storefront tax franchises do — to do a pretty straightforward return that can be done with TurboTax for about $40," Gulbransen said.

He's talking about storefront franchises like H&R Block, maker of TaxCut, one of TurboTax's biggest competitors. H&R Block is plugging more than its TaxCut software this season. For those who want to give software a try but are nervous about going it alone, TaxCut users can tap into an H&R Block tax preparer should they encounter a problem, the company says.

"Our digital products give you access to the Block expertise anytime you need it," says Denise Sposato, a spokeswoman for H&R Block. "No one else in the industry can make this claim."

TAX PREPARERS IN TROUBLE?

If so many taxpayers are turning to computer-driven solutions for their tax return preparation, are human tax preparers in trouble?

Not quite, says Jack Oujo, a Wall-based certified public accountant. Oujo says most people — including his own clients — can prepare their own returns, with the aid of tax software.

"I do not feel the least bit threatened. Why? The value of a good CPA/financial adviser comes from developing strategies that help people reduce their taxes in a way that meets their objectives," Oujo says. "There is not a software package in the world that provides that kind of advice."

There can be a value-add that comes with working one-on-one with a living, breathing tax pro. Software programs may do fine when they're reminding you of deductions you may have missed, but they won't ask you about missed investment opportunities, analyze your portfolio to see if it's set up for the growth you need, or goad you if you're not saving enough to fund your long-term goals, such as retirement and college.

"If someone has a very complex return such as foreign investments, multiple businesses or rental properties, then they would be better off with a CPA," TurboTax's Gulbransen says. "But again, most Americans are not in that position to where it's so complex they can't do it themselves."