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Know the Pros and Cons of Digital and Paper Tax Returns

When you file your taxes, you’ve got two options for submitting your return with the Internal Revenue Service (IRS): electronically or by mail.

Both methods of filing have their pros and cons.  E-filing is safe, faster, and generally more convenient than paper filing, but filing by mail can be cheaper, although it requires the IRS longer to process refunds.

The Benefits of E-Filing

A scant number of tax professionals–five of them, according to the IRS–took advantage of the new technology at the moment.  The new filing method eventually caught on however and, as of 2018, approximately 90% of taxpayers e-filed their returns.

Immediate Confirmation

The biggest benefit of electronic filing is that you will receive almost immediate confirmation that the IRS has received your tax return.

If the IRS finds errors on your return, you will receive a rejection notice (usually within 24-48 hours), and the notice will typically indicate what triggered the actions and what you can do to repair your tax return.

Safety

E-filing is much more secure than paper filing, according to the IRS, because the return, together with all of your sensitive data, is transmitted directly to the IRS computer system.

Your refund is very likely to be processed faster because e-filing means the IRS doesn’t have to sort or transcribe your tax return in its service center.

Less Human Error


There’s a lower chance that the IRS will make a error when calculating your return because IRS employees do not need to manually put in your return line-by-line to its system.

You Do Not Have to Use a Tax Prep Program

You don’t have to use an expensive tax preparation program to e-file your taxes–if you’re tax savvy, have a very simple situation, and are prepared to understand, you can fill tax forms in directly using IRS free fillable forms.  Be aware that you need to be comfortable completing basic tax forms to use the service as no advice is provided.  And if your adjusted gross income (AGI) is less than $72,000, you might be better off using one of the IRS’ many free-file affiliates.

The Disadvantages of E-Filing

Fees

While there are tax preparation tools which are free, many of the top tax prep companies like TurboTax, TaxSlayer, and H&R Block charge fees for tax returns that go beyond a basic filing.  Fees can exceed $100, depending on which type of features you want.

Glitches are always possible once you’re using the net.  In 2020, TurboTax’s website experienced at least seven outages between April 15 and April 17.  Also, your online service provider may face outages that could hamper your filing attempt.

Doesn’t Allow for Certain Filing Situations

Though e-filing supports most tax situations, there are certain scenarios it doesn’t support.  For instance, you can’t file a return for someone who passed away, you can’t attach pictures or PDFs to your return, nor can you file before the IRS opens e-filing for the year.

Benefits of Paper Filing

Filing a paper return can be very beneficial in some specific scenarios that e-filing can’t accommodate.

You Have a Rare Filing Situation

E-filing can only do so much. By way of example, if you will need to prepare a tax return for someone who passed away, you have to file a paper return.  Also, paper filing lets you print and submit pictures or PDFs to supplement your own tax return.

You Need to Build Your Tax Expertise

Many online tax prep tools automate the filing process by asking you questions and using your answers to fill out forms without ever telling you which forms it is filing for your benefit.

You may fill out every form line-by-line and see first-hand all the calculations and considerations your refund requires.

There are lots of drawbacks to paper filing that make the procedure riskier and more taxing than e-filing.

Increases Odds of Errors

Data transcribers at the IRS must manually enter taxpayer information for each paper return they get.  Because of this, it could lead to errors that you might have to fix via an amended return.

For filers who attempt paper filing after years of electronic filing, gathering all the forms necessary for things like student loan interest, mortgage interest, capital gains, and business deductions can be intimidating, and it could result in missing forms or errors.

You Will Need to Remember to Sign the Return

Veteran paper filers realize that you have to manually sign the paper return you submit, or the IRS will not accept it.  Newbie paper filers often forget this fact, resulting in even longer delays than what you’d normally expect with a paper return.

Tips for Paper Filing

You can do a few things to streamline your return entry when you file by paper:

  1. Make sure that your name and Social Security number are on each page, both back and front. 
  2. Double-check your address. This is where the IRS will send any notices, so it’s important that you don’t make a mistake.

  3. Mail your return to the right IRS service center, as the address can change depending on which state you are in, and whether you are including payment with your return.  The IRS provides a state-by-state list online so that you can find the right address.

  4. Get an automatic extension if you are mailing your return near the official filing deadline of April 15, 2021.  Keep in mind that you ought to make a payment with your extension if you think you’ll owe anything.  Otherwise, you could be subject to penalties and interest.

The IRS provides a list of acceptable filing options on its website, which include the following options:

  1.             Hire a tax professional to prepare your own return. 
  2. Use the Volunteer Income Tax Assistance Program, or the Tax Counseling for the Elderly program, if you’re eligible. There are specific requirements for e-filing or paper filing should you use one of these programs.

In the unlikely event your identity is stolen and the thief files a tax return with your information, your e-filed return will be rejected by the IRS as a copy.  You must file a paper tax return in this case and mail it in with Form 14039, the”Identity Theft Affidavit,” notifying the IRS of the issue.

Key Takeaways

    1. E-filing is quickly and provides several free options
    2. Internet or site outages can cause frustrating delays for e-filers. 
    3. Paper filing requires more time than e-filing and can be overpowering. 
    4. Alternatives to filing taxes on your own include hiring a tax pro or engaging in filing aid programs.