Filing by Telephone or On-Line; Tax Payment by Credit Card

This column, in slightly different format, originally appeared in The San Francisco Examiner Newspaper, February 14, 1999

Copyright 1999  Robert L. Sommers, all rights reserved.

Question: May I file with IRS over the telephone?

Answer: Yes. If you meet certain requirements, IRS encourages filing by touch-tone phone. IRS reports a 25% increase in usage through January, 1999.

The "Tele-File" program is designed for simple Form 1040EZ filers who, in general, earn less than $50,000 a year in wages, salaries, tips and interest income (limited to less than $400), filing either as a single person or jointly. Evidently the program has difficulty with additional dependents and exemptions since you cannot Tele-File if you have dependents, are over age 65 on January 1, 1999 or are blind.

Complete the Tele-File form (TEL-1) before calling IRS (the toll-free number is on the form). You do not mail anything and IRS claims the process takes about 10 minutes. IRS gives you a confirmation number which you record on your Tel-File form as proof of filing your return. If you owe money, there is a payment voucher inside your Tel-File package (Form 8855-V). California has a Telefile program with similar requirements and restrictions.

Question: May I pay my federal taxes by credit card?

Answer: Yes. Once you determine the amount you owe on your 1998 tax return, you may make immediate payment with your credit card. The only cards currently participating in this program are MasterCard, Discovery and American Express. This option is available whether or not you file a paper return, electronically or by telephone.

Call 1-888-2PAY-TAX (a toll-free number). Your credit card merchant sends the money directly to the IRS, but your credit card number is not disclosed to IRS. Check with your credit card company regarding their fees, some as high as a hefty three percent of your payment.

Starting February 28, 1999, those who file using Intuit tax preparation software have the option of paying their taxes by charging the balance due on a Discover Card, directly on line. This is a joint arrangement, approved by IRS, between Intuit and Discover card. Again, expect a service charge.

Note: If you owe taxes, but cannot pay them by April 15, you are not required to use a credit card. If you have filed and paid your taxes without an installment agreement during the previous 5 years, you are entitled to pay the balance in installments provided your balance is under $10,000 and the tax will be fully paid in 3 years.

Question: What are the benefits and risks of using an on-line (Internet) service to prepare and file my taxes?

Answer: The same benefits that apply to the Internet generally: fast, simple, convenient and less expensive transactions. Unfortunately, for many taxpayers with complicated tax returns, the risks of avoiding a qualified tax preparer could far outweigh the benefits. [Tax preparers include commercial tax preparation services, enrolled agents, CPAs and tax attorneys. Which to choose generally depends on the complexity of the return and potential risks on audit].

Filing a tax return is as easy as purchasing an inexpensive book or do-it-yourself software over the Internet. Preparing and filing an accurate tax return, however, is required by federal law and is executed under penalty of perjury. If you are later audited by IRS or California’s Franchise Tax Board (FTB), a range of penalties could face you, from civil negligence or fraud (monetary penalties only) to felony criminal charges, in egregious cases. IRS and FTB share information; additional taxes charged by IRS must be reported to the FTB.

The benefit of the professional tax preparer is the updated knowledge, experience and training before the numbers are placed on your return. Generally, a tax preparer focuses on two main goals: (1) whether you are claiming all entitled deductions, exemptions and credits, thus paying the lowest legal amount in taxes; and (2) if audited, whether your return can withstand scrutiny by IRS or FTB. The first involves understanding the law, issue-spotting and tax planning; and the second requires knowledge of the documentation necessary to support your claimed income and deductions.

Filing an inaccurate return or paying too much in taxes because you failed to understand how the tax law applied to your circumstances could far outweigh the initial savings of on-line filing. However, if you have a relatively simple tax picture or a solid understanding of tax law, then using an on-line service makes good sense.


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**NOTE: The information contained at this site is for educational purposes only and is not intended for any particular person or circumstance. A competent tax professional should always be consulted before utilizing any of the information contained at this site.**