How E-filing Changed the Way We Do Our Taxes

HOW E-FILING CHANGED THE WAY WE DO OUR OUR TAXES In 2007, 79.98 million American tax returns were e-filed (roughly 57.4% of all taxes filed that year). Within five years, 82.4% of all taxes were filed electronically, a jump of 25%. Millions of Americans learned that e-filing with tax professionals (or using tax preparation software at home), makes the whole process much easier, but easier than what? Let's take a closer look at how e-filing revolutionized the way we file our taxes compared to how we used to do them. E-FILING: The Early Days Only flve tax preparers particlpated from three metropolitan areas: The first test of the IRS's CINCINNATI pilot e-filing system began in RALEIGH-DURHAM PHOENIX 1986. Orlginally, only returns that had 25,000 returns refunds due could be e-filed. were flled. In 1987, For the first time, flers could have the program expanded to 7 cities and thelr refunds directly deposited Into their bank 78,000 accounts. returns. By MIllions of returns 1992, were e-flled. e-filing was available The IRS began accepting returns across where tax was due. America. Ten years LATER, The IRS allowed people to "sign" thelr forms with a PIN. ****** the e-filing Prior to this, flers stll had to mall In a signature form (though a pllot verslon of the PIN process debuted In 1999). process became completely paperless. How Filing Has Changed FOR INDIVIDUALS (THE SOFTWARE) Older programs allowed users to reference tax guides and simply contained digital versions of the tax forms. Features Included: E-flng (a paper signature form was stll required, however). Valldating returns for errors. In the early 90s, approximately Bullt-In 15 different tax reminder preparation software options The ablity to print tax forms without additlonal font cartridges or software requlred. systems to remind users were on the market. of Important tax deadlines. FEATURES OF TAX PREPARATION SOFTWARE IN 2014 INCLUDED: The ablity to Import last year's Information Integrated tablet and smartphone A searchable help help database apps MODERN TAX PROGRAMS AND APPS ALSO ALLOW USERS TO: ENTER INFORMATION on any of their devices through one INTEGRATE INFORMATION on charitable donations made throughout the year into their prep interconnected account. For example, a user could log Into an account on their smartphone, fill out half of thelr form, and then log Into the same account on thelr computer to finish fling. software. CALCULATE their estimated refunds. How Filing Has Changed FOR TAX PREPARERS Even before e-filing was commonly available, tax preparers used computers to help prepare their clients' taxes before submitting them to the IRS. When e-fling first became avallable for tax preparers, many were uninterested in it. According to Elleen McCrady, former IRS chlef systems development branch and later marketing branch chlef, "Tax preparers were not buylng any of It. Most people flgured It was a plot to capture addltlonal Informatlon for audits." THE INITIAL PROCESS: The tax preparer calls a speclal IRS phone llne where the employee plugs the phone Into a modem/tape recorder That tape Is put Into the Zilog, a minl-computer that translates the To submlt confirmatlon, the IRS employee calls the tax preparer, who plugs thelr phone Into their own modem to Informatlon Into a format the IRS's computer called the "MItron." The Mitron records the tax Informatlon onto a tape. system can understand. recelve the transmlsslon. MODERN TAX PREPARATION SOFTWARE ALLOWS TAX PREPARERS TO: HAVE EASY ACCESS to forms, instructions and other guidance. Easily FIGURE OUT how certain numbers were calculated. INTERACT with their ORGANIZE clients' missing program in the cloud, allowing tax preparers to access their software information (and see where those empty fields are located). Some programs even allow preparers to directly email their clients to get that data, and some allow receipt of information returns from payors. from anywhere they have an internet connection. The Future of FILING As tax preparation software increases in complexity, it's likely that fewer will feel the need to take their simple returns to CPAS or other for-fee tax preparers. The IRS already Those with more compllicated returns (businesses, Indivlduals with FREE allows those with an Income less than $60,000 to access the agency's Free Fle program to E-file federal many Itemlzed deductions) would likely continue uslng CPA Income tax returns CPAS and simllar free of charge. businesses. Highly-politicized tax structures (should they be enacted) would drastically affect the way the average citizen files their taxes. For example: RETURN-FREE FILING Under this system, Individuals don't flle annual tax returns. In exact withholdIng systems, the exact In tax agency reconclllatlon systems, taxpayers glve their Information to the tax agency, whlch flles taxes on amount of taxes due are withheld from Income. thelr behalf. Both of these systems generally eliminate the need for individuals to file their own taxes. Countrles that offer return-free fllng In some circumstances Include: • GERMANY • JAPAN • UK RUSSIA SWEDEN • DENMARK No one knows for sure what filing tax returns will look like in the future. They may be filed for us automatically, or the entire tax structure might be dramatically reorganized. What we do know for sure is that the internet, e-filing and tax preparation software has made it easier for taxpayers and tax preparers alike to file our tax returns more accurately (and receive our refund checks more quickly) than people in decades past could imagine. VILLANOVA UNIVERSITY Brought to you by: taxation.villanova.edu Graduate Tax Program http://www.irs.gov/pub/irs-news/ir-07-185.pdf http://www.irs.gov/uac/Filing-Season-Statistics-for-Week-Ending-June-8,-2012 http://www.irs.gov/uac/IRS-E-File:-AHistory http://mentalfloss.com/article/49742what-tax-prep-software-looked-1991 http://www.pcmag.com/article2/0,2817,1904319,00.asp http://accountants.intuit.com/tax/proseries/professional/features.jsp http://www.theincometaxschool.com/build-your-tax-business/how-to-start-your-own-tax-business/ http://accountants.intuit.com/tax/online/ http://www.taxpolicycenter.org/briefing-book/improve/return-free/what-is.cfm http://taxes.about.com/od/statetaxes/a/Flat-tax.htm http://www.forbes.com/sites/kellyphillipserb/2014/10/30/irs-announces-2015-tax-brackets-standard-deduction-amounts-and-more/ http://www.irs.gov/pub/irs-ut/freefile_benefits_infographic.pdf