Is it safe to do your taxes on-line?

Question

With all of the stories about hackers, is it really safe to prepare and submit your tax return on a web site?

-Joy

Answer

This question was answered on February 19, 2004. Much of the information contained herein may have changed since posting.

For the past decade or so, the most popular method of preparing tax returns for personal computer users was by installing a program, such as Intuit’s TurboTax or H&R Block’s Tax Cut on your personal machine

You prepared your taxes on your own hard drive then printed and mailed the return The storage and security of the data was entirely the responsibility of the user.

Then the IRS announced ‘E-File’ or electronic filing which allowed tax software users to skip the printing and mailing step and submit their tax returns electronically from their home computers.

E-filing reduces mistakes, speeds up refunds and has become a huge cost savings to the IRS The 2004 projection puts the number of e-filed returns at 50 million at an average cost savings of $2 per return.

The natural progression of this technology was to use the Internet to allow users to prepare their taxes without having to install anything on their local computers at all

This would allow users to start their returns at the office and continue working on them at home This also took the burden of storing and securing the data off the shoulders of the user.

This question of what happens with the data is what causes most people to be apprehensive about the process Although Internet security at the browser level has become tighter (better encryption schemes for secure transactions) it has also become more vulnerable because of the vast number of worms that attack vulnerabilities.

The first question you should be asking yourself is not whether you should use a packaged or web version of a tax preparation program, but rather is my computer secure for doing any kind of tax preparation.

Start by making sure your browser has 128-bit encryption by clicking on the ‘Help’ menu then on ‘About’ (often referred to as ‘Cipher Strength’).

If you have not been diligent in updating your Windows based system with security patches as they were announced (20 critical in 2003!) your first step should be to visit http://windowsupdate.microsoft.com</b> to patch any security holes.

If your antivirus program has not been kept up-to-date (checking at least once a week) you could easily have contracted one of the many ‘worms’ that installs a key-logger which records every keystroke you perform and routinely sends a ‘log’ file containing all of this vital information to a remote e-mail address.

Once you have secured your computer, the next question is ‘can I trust the company that I plan to file my return with?’ The security measures in place at most companies like Intuit rivals that of Fort Knox.

According to Scott Gulbransen of Intuit �SThere is inherent risk in every form of return, but it’s actually safer to file via the web then it is to put your tax return in the mailbox, because of the growing instances of identity theft.⬝

The reality is that if you e-file your return in any way it is no different than if you actually prepared your taxes online; in both cases your personal data resides on that companies servers The IRS certifies and monitors any company that is authorized to provide e-filing services and required them to store the data for 3 years before they can expunge it from their servers.

The best advice is to stick to companies that you have heard of and check their security policies before taking the plunge!

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Author

Posted by Ken of Data Doctors on February 19, 2004