E File

"Dr. Woodard" wrote

Tax clients?

You have to use one of the private company websites to do so.

And, any non-e-file services (RAL's come to mind) are not free.

It's the same software that people paying use.

And while you might think that doesn't answer your question, it does.

You are audited based on the return data, not by how you file.

None that I have heard of.

Do you really mean EFILING, or do you mean NETFILING? In either case you haven't understood exactly.

Efiling is a procedure that can be used only by professional tax preparers, it is a method of submitting returns that have been completed using certain professional tax programs. It would not be the efiling that is free, it would be the tax preparation and processing by the preparer. Whether or not it's free depends on the policies and in some cases on the discretion of the preparer. A return that is completed and filed free by one preparer may not be done free by another preparer.

Netfiling cannot be used by professional preparers, it can be used only by the taxpayer personally. It is a method of submitting returns that have been completed using certain consumer tax programs and web applications that are authorized by Canada Revenue Agency. Netfiling has always been free since it was first introduced several years ago. What may (or may not) be free is the tax software or use of specific web applications - whether or not these are free depends on the policies and terms of each program and web application. A return that can be completed for NETFILING (or printed) may be free with one program or web application, but may not be free with others.

Either EFILING or NETFILING provides the advantage of generally FASTER processing, not "delayed" processing as you suggest. There is no guarantee that every return will be processed faster because of electronic submission, but the vast majority will be faster and the average processing time is about 5 business days for electronic submissions compared to about 4-5 weeks for computer-prepared and printed returns and 6-8 weeks for manually prepared returns. In all cases these times refer to initial processing - any return may be subject to a subsequent, more detailed, review from 2 months to 2 years later.

Both are methods of SUBMITTING returns, so there is absolutely no reason why there should be "more errors". The use of either a professional preparer (and professional tax software) for EFILING or consumer tax software for NETFILING should result in FEWER errors compared to doing calculations manually. (However, the use of consumer tax software should be considered an alternative to manual calculations, not an alternative to a professional consultant or preparer.)

CRA advertises that there is no difference in the frequency of audits as a consequence of the method of filing. Some taxpayers dispute this, but it is possible they are confusing a simple request for information with an "audit" - there is in fact a huge difference. Because certain documents (receipts, information slips, schedules and detailed calculations) are NOT submitted with an electronically-submitted return, but would otherwise be submitted with a printed or manual return, CRA does sometimes request a telephone or written explanation for an item or that one or more documents be submitted by mail or fax; this is NOT an audit.

Sorry, I should have noted that my comments apply to CANADIAN tax filing.

This is "E-filing" in the United States. My understanding is the IRS set this up with tax software prep companies in return for the IRS not providing the service for free.

My concern is if I recommend a client use free e-filing am I suggesting something that is more apt to get them audited than if they used the same e-filing option but paid for it out of their own pocket?

So if a client made $20,000 each year, if they paid > $100 for the preparation of state/federal/e-filing forms through a tax prep firm are they more likely to have mistakes/audits if they take advantage of the IRS free tax prep for incomes under $50,000?

"Dr. Woodard" wrote

No. The audit risk isn't different just because you picked free-file over a paid service over preparing it by hand and mailing it in.

Just to clarify, the "free" part is you entering the data into the software. That fact alone makes it riskier (from making mistakes) than hiring a professional to prepare it for you.

An update on this: I was looking at some of the options. Buyer beware. I was noticing that on some of them there is a huge catch... for example H&R Block is free if, and only if, you put the amount of the refund on a debit card. More than likely the debit card has huge fees attached. (i.e. similar to Simon Malls gift cards which some states maintain is illegal.)

I have to wonder what other fast ones are these companies pulling? If you add up all the fees attached to all the catches is it cheaper to just pay for the prep fee than use the IRS "free file" option. Sure looks that way when I poked around the IRS listings.

Apparently the way the IRS is handling it is it is "free" if you access it through the IRS site.

Be careful how free it really is....the hidden fees will choke a horse.