According to the IRS more than sixty million taxpayers filed their returns electronically last year, a number the government would like to see increase as the years go by. Still, that leaves over a hundred million people who didn’t e-file, meaning that either people don’t know how to do it or simply don’t want to. Is e-filing right for you? Like all things, there are both advantages and disadvantages.
There are a number of benefits to e-filing, but in order to e-file you need to either have a tax preparer do the taxes for you or use one of the commercially available tax software programs that allows for electronic filing. The first benefit to e-filing is the processing of electronically filed returns is much faster than that of paper ones – making it especially attractive for people who are in a rush to get their refunds. According to the IRS, the average wait for a refund from a return filed electronically is only about two or three weeks, compared to a minimum of six weeks for paper returns. Of course, if you have to pay, this is less important. E-filing does offer the option of paying your taxes by electronic balance transfer or credit card; this is also available, though, if you file a paper return.
A second advantage to e-filing is that the software that is used is much more accurate than the old pencil and calculator technique. Most tax preparation software programs guide you through the forms step-by-step, asking pointed questions to ensure that you qualify for any deductions or credits that you may claim, and often have handy help sections that are simpler to understand than the IRS instructions included with the paper forms. They automatically tally your refund or liability, meaning you don’t have to consult those pages of tax tables when you’re finished. Best of all, many programs guarantee that your return will be accurate, leaving you with peace of mind as you send off your return. Finally, e-filing provides peace of mind for worry-warts who think there return will be lost in the mail – the government computer system responds to an e-file with a receipt of delivery, your proof of filing.
One disadvantage to e-filing is the expense. While filing a paper return is free (not counting, of course, the taxes you pay), tax software can cost upwards of forty dollars, and paying a professional tax preparer to e-file for you comes with its own price. For some people, buying an expensive application to tell them they owe thousands in taxes is salt in the wound. The IRS has attempted to remedy this by instituting a free e-file program, called “Free File,” in which certain tax preparers will provide e-filing for free for qualified individuals. Not everybody qualifies for this – it depends on your income and filing status. However, it is certainly worth checking out. You can see if you qualify for free electronic filing through the IRS website, where they maintain a directory of companies who participate in the program.
Another potential disadvantage is that some tax preparers are reporting a larger percentage of e-filed returns being selected for an audit, particularly for those returns claiming a large refund. This is mostly unsubstantiated rumor, but it is true that the IRS is concerned with electronic fraud, and it is something to consider, especially if you aren’t certain that the expenses you are claiming on your return can be backed up by your records.
If you do decide to e-file, you need to first select a software or find a tax preparer who offers e-filing (not all tax preparers do this, so make sure to ask). The tax preparer does not have to do your taxes for you – you can do your own taxes and then bring them into a tax preparer who can e-file it for you. Note, though, that the tax preparer is required to have copies of your tax information – W-2’s, 1099’s, etc. – in order to process the return. If you are e-filing from your home computer, and you are eligible for a self-select PIN (a sort of electronic signature), you can file your return in a paperless fashion. Not everybody can use a self-select PIN – if you filled out certain forms you will need to send these in, even though you can still file the rest of your return electronically. For most people, though, it is possible to file a paperless return. Remember, even though you are e-filing, you still must maintain all of your records, just as you normally would with a paper return. The IRS has three years to check up on you, so make sure not to throw away any receipts or W-2’s.
