The Internal Revenue Service is trying hard to convince everyone to file income-tax returns electronically.

That saves the agency time and money, but can the same be said for the growing number of small practices and businesses that are being required to file electronically?

What are the pros and cons for your veterinary practice?

In January 2005, the IRS began requiring the largest corporations to file their forms 1120 and 1120-S electronically. Those are the basic returns for incorporated businesses and S corporations. Now, other large and mid-size corporations — those with assets of $10 million or more and file at least 250 returns annually — also must file those forms electronically.

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Surprisingly or not, record numbers of ordinary taxpayers who are not required to do so are making the choice these days to file electronically, not only tax returns but also many other forms required by the IRS and the Social Security Administration. Even those inevitable payments can be made electronically.

The IRS made me do it

Electronic filing means that tax returns are sent directly to an IRS Service Center over telephone lines in the format of the official IRS forms. The IRS e-file program allows taxpayers to file through an electronic return originator or by using a personal computer, modem and commercial tax-preparation software. The veterinary practice's tax adviser, CPA or bookkeeper can use the e-file program to file returns.

E-filing is not limited to incorporated veterinary practices and businesses; all professional practices and businesses, including S corporations and partnerships, can elect to file electronically, using all forms of magnetic media. Magnetic media include electronic filing as well as magnetic tape, cartridge, diskette or other media. The IRS no longer accepts 3½-inch diskettes for filing, however.

Jumping on board

Electronic payment options for veterinary practices today range far beyond income taxes to include employment taxes, information returns, partnership returns as well as returns from small corporations and S corporations.

Despite the IRS's increased emphasis on electronic filing, however, only 15 percent of eligible companies report having a plan in place to meet electronic-filing requirements. A whopping 35 percent of those surveyed in late December 2006 had not even started to prepare to meet the electronic filing deadline.

Going electronic

If your practice isn't filing electronically, why should it do so? Because it's quick, has a 99 percent accuracy rate and is smart. The IRS acknowledges receipt of an electronically filed return within 48 hours.

How popular is e-filing in the general population? More than half of all tax returns filed in 2006, some 73.3 million, were filed electronically.

The IRS recently issued final regulations governing who is required to file electronically. Although a temporary rule excusing large corporations that claim electronic filing poses a financial hardship was left out, those final rules do provide for a waiver of the requirement in the event of hardship.

The White House is pushing to expand the IRS's authority to require more businesses and exempt organizations to e-file in an effort to bring the IRS closer to its goal of having 80 percent of all returns filed electronically.

In the meantime, while not yet mandatory for most veterinary practices, electronic filing is a relatively straightforward process. Using the IRS's e-file is one option. Most commonly used business forms can be filed either directly through it, through tax professionals or by hiring a professional specializing in electronic filing.

Using the IRS e-file does not affect the chances of an audit.

In most states, a practice can file an electronic state tax return simultaneously with a federal return. Other states encourage electronic filing of required forms and reports, but few require it.