e-filing

You've decided it's finally time to take that big technological tax step. This year, you're e-filing. Now What?
 
You definitely won't be alone. Almost 95 million taxpayers electronically filed returns last year.
It was another e-filing record, and the computer-relayed returns accounted for more than two-thirds of the total 1040s the IRS received in 2009.
Not surprisingly, e-filing comes in two waves: early filers, who generally are getting tax money back and like the speed e-filing offers in getting the refund process going, and taxpayers who wait until just before the April deadline to hit the "enter" key.
In addition to the appeal of more precise time control over your 1040's delivery, electronic filing offers several more attractions. In most cases, the computer filing programs have all the forms you'll need and they are regularly updated. That's important because Congress often makes last-minute changes to tax laws that delay publication of forms. By using software, you'll get the current and correct filing material sooner.
You're also taken step-by-step through the filing process. And the electronic calculators make fewer mistakes, as long as you enter in the correct numbers.
But the most appealing e-filing advantage: Your return gets to and is processed by the IRS sooner. The IRS says turnaround on an e-filed return is, generally, less than two weeks. That speed is especially welcome if you're expecting a refund, which the agency says it can get to you in around 10 days if you e-file and have the refund directly deposited.

Even better, there are a variety of ways to electronically submit your return. Here's a look at your e-file options.

Hire a tax professional
The IRS says computer filing through an authorized tax professional has been the core of e-filing since the system debuted in 1986. Paid tax preparers work with clients to complete their returns and then send them electronically to the IRS. Some preparers take care of the whole process, getting the taxpayer's raw data, exploring appropriate tax breaks, filling in the electronic forms and then submitting them. Others let the taxpayer fill out a paper return and then simply transfer that information to the electronic format for filing.
Tax professionals filed almost 63 million returns electronically last year, so it's likely there's an IRS-authorized e-filer in your area. There are many types of tax professionals, so be sure you find the one that suits your tax needs.
Do-it-yourself options
If you're comfortable doing your own taxes, you can purchase tax software and put it on your computer. This filing segment continues to grow each tax year, with almost almost 27 million individuals, or 30 percent of taxpayers, e-filing for themselves in 2008. You can either pick up the program at your neighborhood electronics store or department store, or go to the company's Web site and download it. These packages promise to save you time, as well as cash. Just make sure you choose software that fits your filing (and computer) situation.
E-file online
Don't want to clutter up your computer with a program you use just once a year? Go directly to one of the many tax software Web sites and e-file directly online. You will still have to pay for the service, but it's generally cheaper than buying the software and you don't have to worry about working through any glitches that pop up when you load a new program onto your computer. Some people, however, aren't comfortable with their personal tax information floating out there in cyberspace if they can't complete and file their 1040 in one online visit.
 
 Each of the three previous e-file options might cost you. But you may be able to file for free if you meet criteria established by the various members of the Free File Alliance, a government/tax software industry partnership created to encourage more e-filers. The 2010 Free File program opened its e-doors Jan. 15 and you can find participating members at the IRS' special Web page. While the Alliance makes it cheap and easy for many taxpayers to file, it's not available to everyone. The major determinant is your income.
 
This filing season, only individuals with adjusted gross incomes of $57,000 or less can use the tax prep software and e-file for no charge. However, the IRS has added Free File Fillable Tax Forms to the program, which can be used by any taxpayer, regardless of income. You won't have access to online software with this new option, but if you know what information goes on your Form 1040, you can type it in and send it directly, for free, to the IRS.
Hang up the phone
One form of electronic filing, however, is absent. Previously, the IRS allowed certain taxpayers, generally those who used the 1040EZ form, to file their returns via the telephone.
But as the IRS focus on e-filing and taxpayer familiarity with computer tax programs increased, the number of phone filers steadily declined, so the agency disconnected the TeleFile option. Some consumer advocacy groups continue to call for reinstatement of phone filing, but odds are not in their favor.
The implicit message: If you filed by phone before, you now need to check out some type of computerized tax-filing method.
W-2s: signatures still required
Electronic filing changes the tax ground rules in many ways. But there are a couple of things that don't change: You must still sign your return, and you have to have your W-2 to file.
The signature requirement can be met by selecting a five-digit personal identification number to enter on your e-filed form. Tax software programs that support e-filing will walk you through the PIN signature process. If you hire a tax preparer, he or she can help you select your numeric signature. By "signing" your electronic 1040 this way, the IRS can start processing your return immediately.
Now about that W-2 data demand. Whether you file the old-fashioned way or electronically, you'll need this document, or at least all the data it contains. If you don't have it, or don't enter in the correct information, you'll run into problems when the IRS double-checks your entries against the official W-2 that your employer sends to you and the IRS.
When you use a preparer to e-file your return, you must give that person a copy of your W-2 (and other income statements) before he or she can transmit your form. If you are e-filing yourself, you enter the W-2 data (income earned, federal tax withheld, employer's tax identification number, etc.) into the tax software program.
Employers should send W-2s to employees by the end of January. If after that time you're still waiting on your income statement, bug your payroll administrator! If that doesn't work, the IRS has a substitute form you can submit.
Other electronic tax considerations
E-filers also should look into the electronic transfer of tax money -- either a refund coming to you or money you owe the IRS.
You can have your refund directly deposited to a chosen account by giving the IRS your personal account details. This should shave a few more days off the wait for your refund.
If you owe, you can have money sent directly to Uncle Sam through several e-payment methods, from credit card payments (remember that you'll also have to pay a processing fee) to direct transmission of the money to the IRS. With the latter, known as the Electronic Federal Tax Payment System, or EFTPS, you can even e-file your return today, but schedule your payment for the April filing deadline.
And don't forget about state tax obligations. In 37 states and the District of Columbia, taxpayers can e-file state returns at the same time they file federal forms. The federal-state e-file program lets taxpayers send both returns to the IRS, and the feds then electronically forward the state return to the appropriate authority.