Acting Internal Revenue Service (IRS) Commissioner Danny Werfel. (Photo By Douglas Graham/CQ Roll ... [+]
Each year, I approach tax filing the way I prepare for a major painting job around my house. There’s a lot of prep work, which I dread because it involves a lot of scraping. I always wish tax prep work was easier, but being self-employed with multiple sources of income and myriad deductions, I have to do a lot of work up front before I send off my information to my tax preparer.
Is there an easier way to deal with this annual headache? Probably not for me at the moment, although the IRS is testing a pilot program called DirectFile that proposes to streamline the process.
The IRS is going from a test to full-scale launch this tax season for DirectFile, which is only offered in 12 states for now.
“Expanding Direct File as the tax deadline approaches will provide more taxpayers a way to file directly with the IRS for free, and it will give us more valuable information to assess this pilot,” said Danny Werfel, IRS Commissioner. “For those who haven’t filed their taxes in the 12 states, we encourage them to visit IRS.gov and see if Direct File is the right option for them.”
Taxpayers in 12 pilot states who meet certain requirements can use Direct File through the April tax deadline. Pilot states include:
- Arizona
- California
- Florida
- Massachusetts
- Nevada
- New Hampshire
- New York
- South Dakota
- Tennessee
- Texas
- Washington State
- Wyoming
What do you do with your state income tax return, which, in most places mirrors the federal returns?
After completing your federal return, in the states with a state-income tax – Arizona, California, Massachusetts and New York — you will be guided to a state-sponsored tool to complete their state tax return, the IRS states.
As with anything concerning federal income taxes, there’s always a catch. DirectFile only is being offered to a handful of state residents for now. And your tax filing must be really simple. No complex deductions. It probably works best for filers with one or two sources of income — tops.
While one of the government’s least-favorite agencies insists that DirectFile is secure — that is, it won’t be hacked — the jury is still out. If your return is more complicated, you may still be better off using commercial software or a professional preparer. And if you file yourself, always get a personal identification number (PIN) from the IRS to prevent fraud. Having been hacked years ago when I was still filing paper forms, I haven’t had a problem using a PIN.
If DirectFile works — and there are no major bugs — it could save you a lot of time and money. I’ve spent up to $1,000 a year preparing my return with a CPA. But the success or failure of DirectFile is precarious since the agency is still significantly underfunded and understaffed. And that’s not even my opinion; it’s the finding of the IRS Taxpayer Advocate’s office.
“In each of the last two fiscal years, the IRS budget has been reduced, and it appears the IRS budget will be cut further in the current year,” the Advocate found in a report highlighting “most serious problems. “The continued underfunding of the IRS poses one of the greatest long-term risks to tax administration today.”
Nevertheless. assuming there are no major software or processing glitches, DirectFile is worth a try. Click here to see if you qualify.
