A taxing decision: How to file?

Remember when tax forms were made of paper? Ah, the good old days, when filling out a 1040 still meant filling out a 1040.

Since our close friends at the Internal Revenue Service started pushing to collect 80 percent of their returns electronically by 2007, pulp is becoming a thing of the past. More than a million taxpayers went paperless in 1998, and the number is expected to grow this year.

What we’re left with are two virtual options: to file our taxes on a computer-based system, such as Intuit’s TurboTax or to take our return to the Web with an application like SecureTax.com or Onetax.com.

Sure, you can still hire an accountant and I’ve even seen the paper tax forms at my post office, but for most of us it comes down to the client versus server decision. Especially for frequent travelers, who do everything on the run — including their taxes. A few moments on the plane or in the hotel are enough to open your laptop and shuffle a couple of numbers around.

In the frenetic days leading up to April 15, the globetrotting crowd is looking for something flexible and portable and, above all, private.

Let me get my personal bias out of the way right up front.

I’ve been using Intuit’s MacInTax, a close relative of TurboTax, from the very beginning, and I couldn’t be any happier. The program loads up easily on my laptop, it’s unobtrusive and requires little pampering, and it comes through year after year with novel (and I hope legal) ways of lightening my tax burden.

At about $30, the basic versions of TurboTax and MacInTax are worth every cent. Once I feed the program all of my receipts, I can take the process anywhere. I filed my 1997 taxes from the easy chair on my balcony, after returning from week-long trip to the West Coast. There were no pencils, papers or erasers involved. What’s more, MacInTax stopped me from making stupid mistakes that would have landed me an interview with one of those not-so-friendly IRS auditors.

I didn’t think figuring my taxes could get any less painful, but I was wrong. Earlier this year I discovered another Intuit product, QuickBooks, which eliminates that last-minute marathon session in front of my laptop to input all of last year’s dead-wood records. It customized the program for my writing business and added the appropriate tax categories. Come filing time, it integrates with TurboTax or a new TurboTax Home & Business (that’s for partnerships, corporations and S-class corporations) so that I don’t have to endure a lengthy question-and-answer with my laptop.

The downside? Price.

TurboTax is one thing. But the deluxe edition, which features step-by-step video advice and costs about $50, is another matter. QuickBooks Pro will set you back by $200. Then there are the system requirements: a fast CD ROM is a must for TurboTax Deluxe, and I wouldn’t fire up QuickBooks without one either. But these are small problems, and all in all much less of a hassle than hiring an accountant.

The second choice, a Web-based tax return system, intrigues me. One reason I find it so fascinating is that it’s new. Onetax.com, the Internet filing system developed by Thomson Investors Network, just went live in December and its owners are bracing for their very first tax season.

I’m left with the impression that this could pose a real threat to what I call the “client” side of tax solutions. Users create a profile on the “server” and work their way through a questionnaire. The interface calculates a return and when you’re ready to send to the IRS, it charges about $10 (that’s for federal and state returns). Onetax.com uses industrial-strength software on the back-end to help tally up what you owe Uncle Sam; it’s practically the same program it licenses to corporations, so you know it’s legit. It doubles up on encryption, preventing even its systems people from accessing your tax return (memo to would-be users: don’t lose your password).

With a hardware-independent tax system “you could work on your taxes on your home computer, your laptop, or from an Internet kiosk at the airport,” says Jane Moynihan, a spokeswoman for Onetax.com.

Plus, with an Internet-based return, sending to the IRS with what’s known as “e-filing” is simple and costs nothing extra. The advantage: you receive a confirmation from the government within 24 hours. If your form is filled out wrong, the IRS will ask you to fix it and resend.

Jeremy Plotnick, who represents rival SecureTax.com, also points out that an electronic filing service never becomes obsolete. “SecureTax.com is cheaper than buying and installing boxed software [because] it is always being updated with the latest tax code information,” he told me.

I’m not going to pretend the cybertax sites are problem-free. I’m still worried about security. In preparing a tax return, I sometimes move deductions from one category to another to see which works best. Some deductions, for example, can be amortized or taken in a single tax year.

What if the IRS could access not only my tax return, but track my creative accounting?

A line of fine print on the SecureTax site bothered me: “Customer information (i.e., personal information as well as tax return data) is not released by [the company] for any reason to outside parties unless required by law or legal process (e.g., subpoena).” So if an IRS auditor wanted to electronically follow my scheming mind, it’s possible? Yes, but unlikely. The bureaucrat would be furnished with the finished return and perhaps my credit card transaction record, nothing more, according to Moynihan. Still, the point’s made – the IRS couldn’t call my computer as a witness that readily.

The other drawback is that you have to stay online in order to work on your return. That’s no problem at home or in the office, but once you’re on the road, connecting can be costly. On the other hand, if by some tragic coincidence your home computer experienced a meltdown, your office computer had a close encounter with a magnet, and your laptop got stolen, you’d still be able to finish your tax return on time.

I’m doing my return on TurboTax this year. I’m going to give the Web tax services a chance to mature before I consider ditching the software. But I’m keeping an open mind in the client versus server debate. I really like what SecureTax and Onetax.com are up to and expect to see more like them emerge in the future.

Christopher Elliott is the author of Scammed: How to Save Your Money and Find Better Service in a World of Schemes, Swindles, and Shady Deals. Critics have called it “eye-opening” and “inspiring” — it’ll “grab your attention and won’t let go.” Order your copy now on Amazon, Barnes & Noble or iTunes.

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