Cutline Speaks

Tax Time (Online)

posted by The Cutline Team on March 5, 2009

It's tax time, and according to a new study by The Conference Board, 40 percent of households are planning on filing their taxes online. The reasons, the study found, are that people are becoming more comfortable with the security of hosted software, while at the same time placing more importance on ease of use and speed of getting their refunds. Not surprisingly, they also found that once people file their taxes online once, they are likely to continue to do so.

I'm a huge fan of doing your taxes online. After college, I used the 1040-EZ form once and quickly found TurboTax boxed software the next year. Two years later I switched to their online service because it was easier than going to the store to buy the software. Much like the participants in the study, I haven't looked back. Now I can't imagine using a pen and paper.

Unfortunately, this study didn't differentiate between people who used a hosted service and people who chose boxed software, but I imagine in the next few years we'll see a drastic jump in the usage of hosted tax programs. For many people this may be the first web app that directly replaces a task that used to be solved with a pen and paper (or confusing forms, in this case).

It's interesting that the same reasons that taxes work better online mirrors a lot of the advantages of hosted software in general:

• Instant updates: When the tax code changes, the software does as well.
• Better data security: I don't have to worry about losing my computer with years of tax data, and I have a backup of my paper copies in case my apartment goes down in an earthquake (hey, I do live in SF after all).
• Connect data from different sources: W2s, brokerage information, and the previous year's data  can all be fed in seamlessly.
• A user-friendly interface: Makes the process simple and fast.

Of course, for all of hosted software's benefits, there can sometimes be a downside as well: In 2007 the TurboTax servers crashed and the IRS had to grant a 48-hour extension for users. I guess some things don’t change -- it still pays to get your taxes done early.

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Some resources for doing your taxes online this year:

• The three leading services:
  • TurboTax
  • TaxCut
  • TaxACT
• The IRS has an extensive list of other companies that offer online tax services, including some that offer free services depending on income levels.
   

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