Convenience and accuracy are drawing more taxpayers, CPAs to the online filing fold
By: Mike Mathis
When Kimberlee Phelan prepared her personal income tax return in the past, she preferred a pencil and paper to the keyboard and mouse even though the latter were at her disposal.
"I really wanted to get my hands dirty," said Ms. Phelan, a shareholder in the tax department at WithumSmith+Brown, a CPA and consulting firm in Princeton. "Now I do it with software. You don’t miss things and you don’t lose things."
One only has to turn on the television, log onto the Internet or overhear office gossip to realize that tax-preparation software and electronic filing has irreversibly changed the accounting industry.
Growing numbers of taxpayers and CPAs are turning to them as more efficient and less costly ways of preparing individual and corporate tax returns.
Taxpayers have embraced e-filing because they can get their refunds quicker, and they don’t have to wait in a long line at the post office on April 15 (or, in the case of this year’s filing deadline, April 17), crossing their fingers that the return is postmarked before midnight.
E-filing also dramatically reduces the amount of paper needed to print the many forms required for state and federal tax returns.
"Some returns are 6 feet tall, just boxes and boxes of documents," said Scott Shafer, a tax partner with Deloitte & Touche, which has locations in Princeton, East Brunswick and Parsippany.
The number of individuals filing their returns electronically rose from 61.5 million in 2004 to 68.4 million in 2005 out of a total of 226.6 million returns filed, according to the Internal Revenue Service.
New Jersey reflected the national trend. The popularity of e-filing in the state increased from 1.3 million in 2004 to 1.8 million electronic returns filed last year out of a total of 7.3 million total New Jersey returns, according to the IRS.
"We are experiencing continued growth in the 1040 e-segment," said Gregg Semanick, a spokesman for the IRS in New Jersey.
Meanwhile, the number of business and corporate tax returns filed electronically also grew, according to the IRS.
For instance, the number of employment tax returns filed nationally rose from 4.6 million in 2004 to 5.9 million in 2005, according to the IRS. In New Jersey, that number grew from 263,661 to 343,088.
Although more taxpayers are filing electronically and using tax-preparation software such as TurboTax and TaxCut the amount of business for preparers has not decreased, said Tom Ochsenschlager, vice president of taxation at the American Institute of Certified Public Accountants, a professional association for CPAs with offices in New York, Washington, D.C., Jersey City and Texas.
Mr. Ochsenschlager said the software companies work closely with the IRS to ensure that their programs are accurate and comply with the agency’s regulations.
"You would’ve thought there’d be a drop-off in the number of people going to CPAs to do their returns, but that’s not the case," Mr. Ochsenschlager said.
That’s because many people who prefer to complete their taxes with the assistance of software programs are turning to CPAs to make sure their returns are accurate before sending them to the IRS, according to several CPAs.
"They’ll ask someone with some tax (preparation) experience to see if it’s correct," said Mike Hoffman, a CPA who is director of tax with WithumSmith+Brown.
Between 60 and 70 percent of WithumSmith clients are e-filing their returns, according to Mr. Hoffman.
The firm began making a concerted effort last year to encourage e-filing, coinciding with a state initiative that required companies with more than 100 employees to file returns electronically, he said.
Mr. Hoffman said those taxpayers who have always done their taxes without the assistance of an accountant are likely still tackling the job themselves.
E-filing has been accepted by younger filers who were raised feeling at ease with technology, although older taxpayers are embracing the concept in greater numbers, Mr. Hoffman said.
"I don’t think e-filing has hurt our client base," Mr. Hoffman said. "There’s nothing extra they have to do. Unless a client has an objection to it, we’re doing it. It’s definitely the exception when someone isn’t e-filing."
For a growing number of corporations, filing taxes the old-fashioned way is no longer an acceptable option.
The IRS is already requiring companies with $50 million in assets and at least 250 returns including income tax, excise tax and employment tax returns to file electronically. Next year, the mandate will be extended to include firms with assets of $10 million with at least 250 returns.
By 2007, the IRS said it expects that more than 20,000 large corporate taxpayers and up to 10,000 tax-exempt entities will be covered by the electronic filing requirement.
"Slowly but surely, we are seeing more mandates to do this," Mr. Hoffman said.
In addition to the speed at which returns are filed and refunds obtained, Mr. Hoffman said e-filing is more accurate than filing a paper tax return because it eliminates the number of computer input errors IRS employees make due to improper keystrokes or poor handwriting.
"You have a decreased chance of human error," Mr. Hoffman said. "There’s no chance of data-processing errors on their end."
Mr. Shafer said e-fling also has prompted greater scrutiny of tax returns before the final version is submitted.
Hand-written changes to electronically submitted returns are not acceptable, and the extra time needed to ensure the return is correct encourages some companies to file their return before the March 15 deadline for corporate returns, Mr. Shafer said.
"It has to be pretty close to perfect before you push that button and send it to the IRS," Mr. Shafer said. "It’s made companies step back and take a look at things."
Ms. Phelan said e-filing and tax-preparation software has given her and other CPAs more time to advise clients on investments and tax, education and estate planning discussions they rarely had time for before.
"It’s giving us more time to plan with clients," Ms. Phelan said. "More of my time is spent discussing tax advantages rather than going through papers. You can talk to them more about what they’re doing rather than focusing on a prior year."

