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The Tax Man Cometh Online

The saying that death and taxes are the only inevitabilities in life is painfully true. However, only one of them can be dealt with online.

Increasing numbers of Web-savvy taxpayers are turning to the Internet or software solutions to prepare their taxes, a migration that was generally unheard of five years ago.

A recent survey by Jupiter Research, a division of Jupitermedia Corporation and the parent company of this Website, states that the day of online tax preparation is finally here and that the conversion rate among people who traditionally do their taxes by themselves is on the rise.

According to Jupiter's consumer study titled "Online Tax Preparation: Broaden Appeal Beyond Early Filers to Minimize Piracy," Internet households that include early bird tax filers grew 31 percent from last year, and are expected to grow steadily.

The survey information was drawn from more than 2,800 households.

"There is definite progress toward electronic preparation that is either desktop related or Web-based coming mostly from people who prepare by hand," said Robert Sterling, the author of the study and a senior analyst for Jupiter Research. "People who use accountants, however, are not making the turn over."

According to Jupiter, Web-based tax preparation peaks in January and declines throughout the tax season. The group of tax payers that are slipping through the cracks are those who procrastinate and wait until the last minute to do their taxes and then resort to more traditional preparation methods.

The number of online tax preparers takes a dramatic slip from 19 percent in January to around 4 percent in April.

The result is an avalanche of paper filings with the Internal Revenue Service (IRS).

"Paper returns are more labor-intensive for the IRS to process than electronic (e-file) returns, and so the IRS is bogged down with unnecessary paper during its busiest period, the days leading up to and following April 15, decreasing efficiency and increasing costs at the agency," said Sterling.

Other issues slowing the more widespread use of online tax preparation, are that desktop applications providers, such as H & R Block's Tax Cut software and Intuit's Turbo Tax, are frequently subjected to software pirating.

"Tax preparation software programs are generally used once and then passed along to another users," said Sterling.

They can also be easily downloaded from many peer-to-peer file-sharing networks.

Out of an estimated 15 million returns that were prepared last year using Intuit software, there is speculation that more than half were prepared using pirated software.

But according to Sterling, those numbers are tough to nail down and could be the result of multi-taxpayer family homes using the same tax preparation software.

The answer, according to Jupiter Research, is that the IRS should drive Web-based tax preparation more aggressively, and that companies like Intuit and H&R Block should offer more user-friendly web-based preparation solutions to the committed pencil and paper crowd of taxpayers who wait until the last minute.

"Tax software providers have focused their efforts on converting people to the Web, but in failing to convert filers, they may be forfeiting sales and service revenue to piracy," said Sterling.