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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 advantages and disadvantages.  E-filing is safe, faster, and generally more convenient than paper filing, but filing by email can be cheaper, although it takes the IRS longer to process refunds.

The Advantages of E-Filing

E-filing was first introduced in 1986, and it got off to a slow start. A scant number of tax professionals–five of them, according to the IRS–took advantage of this new technology at the time.  The new filing method eventually caught on though 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 in your return, you will receive a rejection notice (usually within 24-48 hours), and the note will typically indicate what triggered the action and what you can do to repair your tax return.

Safety

E-filing is more secure than paper filing, according to the IRS, since the return, with all your sensitive information, is transmitted directly to the IRS computer system.

Faster Processing

Your refund is likely to be processed faster because e-filing means the IRS does not have to sort or transcribe your tax return at its service center.


There’s a lesser chance that the IRS will make a mistake when calculating your return because IRS employees don’t need to manually put in your return line-by-line into its system.

You Do Not Have to Use a Tax Prep Program

You don’t need to use an expensive tax preparation program to e-file your taxes–if you are tax savvy, have a simple situation, and are willing to understand, you can fill tax forms in directly using IRS free fillable forms.  Be aware that you should 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 may be better off with one of the IRS’ many free-file affiliates.

E-filing comes with some potential headaches, too.

Fees

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

Vulnerable to Outages

Glitches are always possible once you’re using the internet.  In 2020, TurboTax’s site experienced at least seven outages between April 15 and April 17.  Also, your internet service provider may face outages that could hamper your submitting effort.

Doesn’t Allow for Certain Filing Situations

Though e-filing supports most tax situations, there are certain situations it does not support.  By way of example, you can not file a return for somebody who passed away, you can’t attach pictures or PDFs to your return, nor will you record before the IRS opens e-filing for the year.

Advantages of Paper Filing

Filing a paper return can be very beneficial in certain scenarios that e-filing cannot accommodate.

You’ve Got a Rare Filing Situation

E-filing can only do so much. For instance, if you will need to prepare a tax return for somebody who passed away, you must file a paper return.  Also, paper filing allows you to print and submit images or PDFs to supplement your own tax return.

You Want 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’s filing on your behalf.

You may fill out every form line-by-line and see firsthand all of the calculations and factors your refund requires.

Disadvantages of Paper Filing

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

Increases Chances of Errors

Data transcribers in the IRS must manually input taxpayer information for each paper return they receive.  As a result of this, it could result in errors that you might need to fix via an amended return.

Overwhelming for Beginners

For filers who try 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 might lead to missing forms or mistakes.

You 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, leading to 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 every page, both front and back. 
  2. 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 perfect 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 correct address.

  4. Get an automatic extension if you are mailing your return near the official filing deadline of April 15, 2021.  Bear 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 interest and penalties.

The IRS provides a list of acceptable filing options on its own 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 if you use these programs.

In the unlikely event that your identity is stolen and the thief files a tax return with your data, your e-filed return will be rejected by the IRS as a duplicate.  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. Web or site outages can cause frustrating delays for e-filers. 
    3. Paper filing requires more time than e-filing and may be overpowering. 
    4. Alternatives to filing taxes in your include hiring a tax professional or participating in filing aid programs.