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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 filing your return with the Internal Revenue Service (IRS): electronically or by mail.

Both methods of submitting have their advantages and disadvantages.  E-filing is safe, faster, and generally more convenient than paper filing, but filing by email can be cheaper, though it requires the IRS longer to process refunds.

The Advantages of E-Filing

E-filing was initially 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 however and, as of 2018, roughly 90% of taxpayers e-filed their returns.

Immediate Confirmation

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

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

Safety

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

Faster Processing

Your refund is very likely to be processed quicker because e-filing means the IRS does not need to sort or transcribe your tax return in its service center.

Less Human Error


There’s a lesser chance that the IRS will make a mistake when calculating your return because IRS employees do not need to manually enter your return line-by-line to 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’re tax savvy, have a simple situation, and are prepared to learn, 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.

E-filing comes with some potential headaches, too.

Fees

While there are tax prep 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 basic filing.  Fees can exceed $100, depending on which type of features you want.

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

Doesn’t Allow for Certain Filing Situations

Though e-filing supports most tax scenarios, there are certain situations it doesn’t support.  For example, you can’t file a return for somebody who passed away, you can’t attach images 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 helpful in some specific scenarios that e-filing cannot accommodate.

You’ve Got a Rare Filing Situation

By way of example, if you need to prepare a tax return for somebody who passed away, you have to file a paper return.  Also, paper filing lets you print and submit pictures or PDFs to supplement your tax return.

You Want to Build Your Tax Experience

Many online tax prep tools automate the filing process by asking you questions and using your replies to complete forms without ever telling you which forms it is filing on your behalf.

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

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

Increases Chances of Errors

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

For filers who try paper filing after years of electronic filing, collecting all the forms necessary for things like student loan interest, mortgage interest, capital gains, and business deductions can be intimidating, and it could lead to 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 submission when you file by paper:

  1. Make sure 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, since the address can change depending on which state you are in, and whether you’re including payment with your return.  The IRS provides a state-by-state list online so you can find the correct address.

  4. Get an automatic extension if you’re 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 believe you’ll owe anything.  Otherwise, you might be subject to penalties and interest.

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 return. 
  2. There are specific requirements for e-filing or paper filing if you use one of 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 copy.  You have to file a paper tax return in this situation 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 overwhelming. 
    4. Alternatives to filing taxes in your include hiring a tax professional or participating in filing aid programs.