Online tax preparation services can save you hundreds of dollars and hours of your time by cutting through the bureaucratic language of the IRS and the ever-changing world of tax law. There are dozens of online resources out there to help you through the process, and if you take the time to organize your records before you begin, preparing your taxes can be relatively simple.http://www.irs.gov/efile/index.html 

Tax programs calculate your tax, prepare and file the correct forms, and deliver your refund directly to your bank account within a matter of days. You will also be helping the IRS out by turning in the most accurate return possible.http://www.irs.gov/efile/index.html 

1. Accuracy: Filing electronically increases the accuracy of your return. This is important because inaccuracies are one of the red flags that can trigger an audit.
2. Simplicity: Online tax services like TurboTax make filing a breeze by literally walking you through every step and preparing whatever schedules and forms are appropriate.
3. Efficiency: Not only can you file your federal and state returns simultaneously, they'll be filed instantly. You'll receive an immediate receipt for your return, and your refund will be processed within a matter of days.http://www.irs.gov/efile/index.html
   

The cost of preparing your taxes online varies from service to service and on the complexity of your return. If you plan on itemizing, are self-employed or have moved in the past year, you will pay a bit more than users with relatively simple returns to file. Keep in mind, however, that these services essentially pay for themselves because they are more likely than you are to catch all the exemptions, deductions and tax credits you are qualified to claim.http://www.irs.gov/efile/index.html

The major services also offer support should you ever be audited, and they save your data from year to year, which makes the annual tax-filing ritual much less of a hassle. The major online tax preparation services include:

• TurboTax
• H&R Block
• TaxACThttp://apps.irs.gov/app/freeFile/jsp/index.jsp?ck 

If you meet certain income requirements, you also have the option of filing online for free by using the IRS Free File service.http://www.irs.gov/efile/article/0,,id=118986,00.html 

Services like TurboTax and TaxCut use the same encryption technology used by banks to e-File your tax return with the IRS, and their servers are firewall-protected. You should also protect your computer by running a firewall and regularly scanning your computer for viruses and malware.http://www.irs.gov/efile/article/0,,id=121477,00.html

If your income is low enough, you may not have to file an income tax return. Refer to IRS Publication: Exemptions, Standard Deduction and Filing Information (501) or Smart Money's "In Some Cases, You Don't Need to File a Tax Return" for more information.http://www.irs.gov/pub/irs-pdf/p501.pdf http://www.smartmoney.com/tax/advice/index.cfm?story=whennottofile 

1. Social Security Numbers: For you, your spouse and any dependents.
2. W-2 Forms: You will receive a W-2 form, a statement of the wages you earned for the year, from your employer. You should receive your W-2 by January 31st. If you have not received your W-2 by then, contact your employer. If you are filing jointly with your spouse, you will need to collect the W-2 forms from both of your employers.
3. 1099 Forms: 1099s are forms you receive for dividends, retirement accounts, scholarships and other forms of income. If you are self-employed, you will receive 1099s from the companies you worked for in the past year reporting any money you earned as an independent contractor.
4. Receipts: If you plan on deducting any expenses or charitable contributions from your taxable income, you will need to have those receipts on hand. If you are bringing your receipts to a tax preparer, take the time to organize them into useful categories like medical expenses, mortgage interest, business-related expenses, etc.
5. Bank Account Numbers: If you wish to receive any refund you might be due by direct deposit, you will need your bank's routing number and your bank account number.
6. Adjusted Gross Income from the Previous Tax Year: You will need last year's tax return to accurately complete this year's.http://www.irs.gov/pub/irs-pdf/i1040gi.pdf
   

Depending on your financial situation, you may need to collect additional documentation related to your income and expenses for the year in order to complete your tax return. Some of this documentation will be sent to you in much the same way your W-2s and 1099s are. If it is not, you are responsible for providing it. The following is a partial list. For a more complete list of the documentation you may need to complete your tax return, visit MSN Money's "What you really need to do your taxes".http://articles.moneycentral.msn.com/Taxes/taxchecklist.aspx

• Partnership and Trust Income

• Pensions and Annuities

• Alimony Received 

• Jury Duty Pay

• Gambling and Lottery Winnings: Documentation provided by the casino or lottery authority via Form W-2G.

• Scholarships and Fellowships: Documentation provided by the administrators of these programs via Form 1099-MISC.http://articles.moneycentral.msn.com/Taxes/taxchecklist.aspx 

• Mortgage Interest: Documentation provided by your lender via Form 1098.

• Sale of Your Home: Documentation provided by your lender or closing agent via Form 1099-S.

• Moving Expenseshttp://articles.moneycentral.msn.com/Taxes/taxchecklist.aspx
  

• Interest Income Statements: Documentation provided by financial institution via Form 1099-INT or 1099-OID.

• Dividend Income Statements: Documentation provided by company paying dividends via Form 1099-DIV.

• Tax Refunds & Unemployment Compensation: Documentation provided by agency via Form 1099-G.

• Student Loan Interest Paid: Documentation provided by lender via Form 1098-E.

• Early Withdrawal Penalties on Time Deposits: Documentation provided by financial institutions.http://articles.moneycentral.msn.com/Taxes/taxchecklist.aspx
  

• Gifts to Charity: Documentation provided by charity for single donations of $250 or more.

• Unreimbursed Expenses related to Volunteer Work or Your Job

• Education Expenses

• Child Care or Adoption Expenses

• IRA, Keogh & Other Retirement Plan Contributions

• Medical Expenseshttp://articles.moneycentral.msn.com/Taxes/taxchecklist.aspx
  

• Receipts and Documentation for all Business-Related Expenseshttp://articles.moneycentral.msn.com/Taxes/taxchecklist.aspx
  

1. Single: If, on the last day of the tax year, you were unmarried or legally separated, your filing status is "single."
   
2. Married Filing Jointly: You and your spouse report your incomes on one tax return. You are both required to sign the return.
3. Married Filing Separately: If it reduces your tax bill, you and your spouse can file separately. You and your spouse are then each responsible for your own taxes.
4. Head of Household: Head of Household is a special status, which entitles you to a lower tax rate. You may be able to file as "head of household" if you are single, paid more than half the cost of keeping up a home and have a "qualifying person" such as child living in your home for more than half the year.
5. Qualifying Widow(er) with Dependent Child: This status may apply to you if your spouse died in either of the two preceding tax years and you have a dependent child.http://www.irs.gov/publications/p501/ar02.html#d0e1323
   

The following is a rough outline of the process the online tax programs will walk you through to complete your return:

1. Calculate Your Gross Income: Your gross income includes all of your income—your wages, interest earned on investments, stock dividends, business income, rental income, alimony, prize money, tips, etc. The majority of your income is documented in the various W-2s and 1099s you receive at the beginning of the year. You may or may not receive documentation for things like tips, but you must report all of your income. (See IRS Tax Topic: Tips (402) for more information.)http://www.irs.gov/taxtopics/tc402.html 
2. Calculate Your Taxable Income: With tax laws changing every year, it's almost impossible to figure out which "adjustments" you can make to your "gross income" to arrive at your "taxable income." Your "taxable income" is the figure the government actually uses to figure out whether or not you owe them or they owe you, and those "adjustments" include everything from tax credits and exemptions to itemized deductions.http://www.fool.com/school/taxes/1999/taxes990401.htm 
   1. Your online tax program will ask you a series of questions to figure out whether or not you should itemize and which adjustments you are qualified to make. While the program will do all the work for you, it's not a bad idea to understand what it means to itemize and whether or not a tax credit may apply to you. A breakdown of these various adjustments is provided at the end of this Step.http://turbotax.intuit.com/best-tax-software/why-choose-turbotax/
      
3. Calculate Your Tax: Once the program knows your taxable income, it can calculate your tax based on the IRS tax tables for the current year./how-to-do-your-taxes#Step_6:_Calculate_Your_Tax Another useful feature of a program like TurboTax is that it will actually keep track of your tax in the sidebar of the screen as you complete your return so you can see that figure rise and fall as you input your financial info.http://turbotax.intuit.com/best-tax-software/why-choose-turbotax/ 

Unlike deductions which only reduce your taxes by a marginal rate of 25%, credits give you a dollar-for-dollar reduction in your taxes. If you had a $100 deduction, you would only get to take $25 off your taxes. If you have a $100 credit, you get to take $100 off your taxes.http://www.irs.gov/taxtopics/tc600.html 

There are different types of tax credits—child tax credits, adoption tax credits, retirement savings contribution tax credits, etc. To figure out if any tax credits apply to you, consult IRS Tax Topics: Tax Credits (600).http://www.irs.gov/taxtopics/tc600.html

An exemption allows you to reduce your taxable income by a set amount. You are typically allowed one tax exemption for yourself and, if you have dependents, one tax exemption for each dependent. For more information about exemptions, refer to IRS Publication 501: Exemptions, Standard Deduction and Filing Information.http://www.irs.gov/publications/p501/index.html

• Medical Expenseshttp://www.irs.gov/taxtopics/tc502.html
  
• Interesthttp://www.irs.gov/taxtopics/tc505.html 
• Charitable Contributionshttp://www.irs.gov/taxtopics/tc506.html 
• Casualty and Theft Losseshttp://www.irs.gov/taxtopics/tc515.html 
• Business-Related Expenseshttp://www.irs.gov/taxtopics/tc509.html 
• Educational Expenseshttp://www.irs.gov/taxtopics/tc513.html 
• Miscellaneous Itemized Deductionshttp://www.irs.gov/taxtopics/tc508.html 

Consult IRS Tax Topic: Itemized Deductions (500) for more information on allowable itemized deductions.http://www.irs.gov/taxtopics/tc500.html 

You should itemize only if your allowable itemized deductions equal a greater amount than the standard deduction. The only time you are required to itemize is if you and your spouse file separately. If one of you itemizes, you both have to itemize. If you are self-employed, you may also find it advantageous to itemize because your business-related expenses can be written off as deductions, which can help off-set the fact that taxes are not automatically withheld from the income you receive as an independent contractor.http://www.irs.gov/taxtopics/tc501.html 

Online tax services like TurboTax and professional tax preparers will prompt you with questions to figure out if you qualify for any of these deductions.http://turbotax.intuit.com/ If you are doing your taxes independently, follow the instructions provided by the IRS and consult IRS Tax Topics: Adjustments to Income (450).http://www.irs.gov/taxtopics/tc450.html 

1. Be sure that you have entered all of the necessary information into the program.
2. Preview the tax forms you will be electronically submitting.
3. Check the forms for accuracy, and remember that you must have documentation on file for any deduction you claim.
4. If you owe the government money, you will be prompted to enter a credit card or bank account number to pay your taxes. If you are owed a refund, you will be asked for a bank acccunt and routing number so that a refund can be issued to you via direct deposit.
5. Using the eletronic signature option, e-sign your return. (This will typically consist of choosing a unique PIN number.)
6. Print out a copy of your completed tax return for your records.
7. Electronically file your return.http://www.irs.gov/efile/index.html 

Another bonus of using an online tax preparation program is that your state and federal returns will be filed simultaneously.http://www.irs.gov/efile/index.html

Disclaimer: The content in this page is not a substitute for professional financial advice. Please contact a finance professional before using the information presented here.