Lesson 3 - How to file and pay your taxes electronically
Hi, I'm Doug, and I have my own business fixing computers.
Even though I fix other people's computers for a living, bank online, and do a lot of online shopping, I've never filed or paid my taxes online. As my business keeps growing, filing and paying by paper is becoming a big burden, and now that I'm considering hiring some employees, it's going to be an even bigger burden. I've heard about e-file, but I'm not sure if the forms I need to file are supported-- and I don't know anything about paying online, just a bunch of initial-- EFW, EFTPS, and maybe some others. What help can you offer me?
Doug, you've come to the right place.
Hello everyone, and welcome to How to File and Pay Your Taxes Electronically. In this lesson, we'll describe IRS e-file and its benefits for your individual and business returns as well as describe electronic payment options so you can determine which is best for your business. By the end of this lesson, we hope to convince Doug, and you, of the benefits of filing and paying your taxes electronically.
Benefits of E-Filing
Before we discuss your specific business situation, let's talk about the benefits of electronic filing.
First, e-filing is convenient. You'll receive a fast, electronic acknowledgement that the IRS has received your return.
Second, e-filing is accurate. There are few risks of math errors and of receiving a letter from the IRS. If there are any errors on the return, you'll receive an easy to understand error message in plain language.
Third, e-filing is safe. Your tax information is secure, and only authorized IRS employees have access to the system.
Get refund electronically
Fourth, just as you filed electronically, you can receive a refund electronically by providing your bank's routing number; the type of account, either checking or savings; and your account number.
Tax preparation software does calculations
Finally, if you use tax preparation software, the software performs your calculations and highlights needed forms and schedules.
You can buy your own software or you can choose a tax preparer who is an authorized IRS e-file provider.
You may even be eligible to electronically file your federal returns for free through an IRS partner.
Signing is simple
And signing your return is simple and electronic. You can choose your own five digit personal identification number, or PIN, to sign your return.
If you want additional information, go to www.irs.gov. Just click on the e-file logo. And there, you'll find all the information you need to get started.
Customize this lesson
Now we have some questions, and your answers will help us customize this lesson for you. Please answer the following questions as they pertain to you and your business.
1. How is your business organized? (Sole Proprietor. Partnership, Corporation, Charity or Non-Profit)
1. How is your business organized?
2. Do you pay your taxes electronically? (Yes or No)
2. Do you pay your taxes electronically?
As a self-employed sole proprietor, when you do file your Form 1040 electronically, you'll complete a Schedule C to report your business income and expenses. Schedule C is included in the Form 1040 software package you purchased, so there's no need to purchase additional business tax software. This software does all of the math, and it even calculates depreciation for you. And, if you use a tax preparer, their software will take care of everything, too.
Large partnerships with over 100 partners are required to file electronically. All other partnerships, however, may choose to voluntarily file their Form 1065, US Return of Partnership Income, electronically regardless of the number of partners. A complete list of approved IRS e-file for business providers who offer the Form 1065 e-file product can be found at www.irs.gov. Just click on the e-file logo and then on the link for e-file for business and self-employed taxpayers. There, you will find more information as well as links to companies' Websites. You may be able to enter your return information online using software provided by the Form 1065 e-file provider of your choice. The provider will then transmit your Form 1065 and Schedule K1, Partner's Share of Income, Deductions, Credits, etc., to the IRS.
Corporations can electronically file Form 1120, US Corporation Income Tax Return; Form 1120F, US Income Tax Return of a Foreign Corporation; and Form 1120S, US Income Tax Return for an S Corporation, as well as associated forms and schedules. Any business taxpayer who files Form 1120, 1120F, or 1120S may electronically file their return through an authorized IRS e-file provider. A listing of 1120, 1120F, or 1120S e-file approved providers is available at www.irs.gov. If you're a corporate filer who'd like to participate in 1120, 1120F, or 1120S e-file, talk to your tax preparer to see if they offer it to their clients. Some corporations are required to file electronically. Those corporations with $10 million or more in total assets and that file 2 hundred and 50 or more returns a year are required to electronically file their Form 1120, 1120F, and 1120S. The total number of returns is determined by aggregating all returns, regardless of type, that are required to be filed over the calendar year, including income tax returns, returns required under Section 6033 of the Internal Revenue Code, information returns, excise tax returns, and employment tax returns.
Charities and non-profits
Charities and non-profits can electronically file the following forms through an IRS Authorized e-File Provider: Form 990, Return of Organization Exempt from Income Tax. Form 990 EZ, the short form. Form 1120POL, US Income Tax Return for Certain Political Organizations. Form 8868, Application for Extension of Time to File an Exempt Organization Return. Form 990PF, Return of Private Foundation, and Form 990N. Most small tax-exempt organizations whose annual gross receipts are normally $50,000 or less are required to electronically submit Form 990N, also known as the e-Postcard, unless they choose to file a complete Form 990 or Form 990EZ. To complete Form 990N, go to www.epostcard.form990.org and follow the directions to register, create, and send your e-Postcard. Any exempt organization may electronically file their return through an approved IRS e-file for business provider. You can access the continuously updated approved providers at www.irs.gov. Your organization may even be eligible to electronically file the 990EZ for free through an IRS partner. If you're a non-profit who'd like to participate in 990 e-file, please talk to your tax preparer to see if they offer electronic filing to their clients. You can find additional information about electronic filing for charities and non-profits at www.irs.gov. Just click on the e-file logo.
Benefits of Paying Electronically
Now that you've learned about filing your taxes electronically, let's talk about paying electronically.
There are two ways to pay electronically: Electronic Funds Withdrawal, also known as EFW, and the Electronic Federal Tax Payment System, also known as EFTPS.
Paying Electronically with Electronic Funds Withdrawal
What can you tell me about EFW?
I'm glad you asked, Doug. EFW stands for Electronic Funds Withdrawal. It is a way for you to pay money you still owe when you file your taxes. When you use EFW, you authorize the US Department of Treasury, through a treasury financial agent, to transfer money from your bank account to the Treasury account.
You enter your bank routing number, your bank account number, and the account type, such as checking or savings, that you want the payment withdrawn from. This is instantaneous, and there is no charge but make sure to check with your financial institution about any fees it may charge. The payment date is the same as the date the balance due return is filed, and the funds are withdrawn in a single transaction, not in installments. You can call the IRS e-file Payment Inquiry and Cancellation Service toll free at 1.888.353.4537 to inquire about payments. Wait 7 to 10 days after your return was accepted before making inquiries, and contact the IRS e-Help Desk immediately at 1.866.255.0654 if there is an error in the amount withdrawn. Wow, EFW sure has a lot of benefits.
Paying Electronically with EFTPS
What can you tell me about EFTPS?
Well Doug, I can tell you that over 12 million taxpayers are currently enrolled in the system, and it is especially useful to business taxpayers with employees because it makes it easy for them to make deposits of withheld employee income and payroll taxes. Also, you can use EFTPS to pay your own quarterly estimated taxes. In addition, EFTPS is safe, secure, and private. It is also available 24/7. You have the ability to schedule payments when you want, and you'll receive immediate confirmation of every transaction. Also, you can check up to 16 months of your EFTPS payment history online or by calling EFTPS Customer Service. Okay.
Enrolling in EFTPS
What about enrollment in EFTPS?
You have two options for enrolling in EFTPS, and both are free. Online enrollment is available at www.eftps.gov. You will receive your Personal Identification Number, or PIN, in the mail within five to seven business days. If you would like to enroll by mail, you can call EFTPS at 1.888.725.7879 Monday through Friday, 9 a.m. to 6 p.m. Eastern Time, and request an enrollment form by mail. You will then receive your PIN within seven business days after your completed form is received by EFTPS. As soon as you receive your PIN, you can begin scheduling payments. If you use EFTPS.gov, follow the prompts to set your internet password. If you wish to schedule payments by phone, just call 1.800.555.3453. Also, if you received a pre-enrollment letter from EFTPS, you can activate your enrollment by calling the same number. You'll need your financial institution's routing number and your account number.
Making payments in EFTPS
How can a business owner like me make payments?
There are two primary EFTPS payment methods: EFTPS direct and EFTPS through a financial institution.
EFTPS direct is an electronic payment method that allows you to access EFTPS directly, either by phone or online, to pay your taxes. Make sure you have your PIN and EIN or SSN. You will be prompted for any other information necessary to complete your tax payment as you go along. Make sure to submit your tax payment information by 8 pm Eastern Time at least one day prior to your due date at EFTPS.gov or check the EFTPS Website for the number to call for payment. After submitting your information, you will immediately receive an Electronic Funds Transfer Acknowledgement Number to keep for your records. If you want to cancel a payment, you must do so by 11:59 PM Eastern Time at least two business days before the scheduled date. EFTPS will then debit your designated bank account on the date you scheduled. Your tax data will be reported to the IRS, and your records will be updated automatically. You may check the status and history of any payment you have made using EFTPS in the last sixteen months at www.eftps.gov.
EFTPS Through a Financial Institution
In the second method, EFTPS through a financial institution, you instruct your financial institution to electronically move funds from your account to the Treasury's account. Not all financial institutions, however, offer this service, so before selecting this option, check with your bank to see if they offer this service, how much it costs, and if you are eligible to use it. Remember, it is your responsibility to initiate tax payment or to authorize a trusted third party, such as a tax professional or payroll service, to initiate the payment for you.
When your payroll company makes your payments
What if the business owner contracts for payroll services?
If you choose to allow your payroll company to make tax payments on your behalf, check with them for specific fees, deadlines, and instructions for enrollment in EFTPS. If your payroll company is not making all of your tax payments through EFTPS, you will need to enroll in EFTPS to make those payments. Even if you do use a payroll company to pay all of your taxes, it is still a good idea to enroll in EFTPS separately. This allows you to check on and ensure that your payroll company is making the payments on your behalf. It also provides flexibility if you ever need to change payroll companies in the future. For more information on EFTPS, go to www.irs.gov and click on the EFTPS logo or go directly to the EFTPS Website at www.eftps.gov. And don't forget to review IRS Publication 966, Electronic Federal Tax Payment System: A Guide to Getting Started.
Lesson Summary - Not Yet Paying Electronically
Depending on how you answered the questions at the beginning of the lesson, you've learned quite a lot about filing and paying federal income taxes electronically. And Doug, I hope we've given you-- and the rest of our audience-- some very convincing reasons to consider filing and paying electronically.
This was a very helpful lesson, and you've given me a lot to work with. Thanks.
You're welcome Doug.
If you're an employer, please join us for the lessons about filing and paying your employment taxes electronically. We hope you'll take advantage of our IRS e-file and e-pay options. Thank you for joining us for this lesson on how to file and pay your taxes electronically. Best wishes for your business.
Lesson Summary - Already Paying Electronically
Depending on how you answered the questions at the beginning of the lesson, you know that e-file and e-pay streamline the tax process and make things easier for you. Thank you for joining us for this lesson on how to file and pay your taxes electronically. Best wishes for your business.