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Should You E-File or File Taxes by Mail?

Know the Pros and Cons of Digital and Paper Tax Returns

When you file your taxes, you have two options for filing 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 mail can be cheaper, though it takes the IRS longer to process refunds.

The Benefits 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 moment.  The new filing method eventually caught on though and, as of 2018, roughly 90% of taxpayers e-filed their returns.

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

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

Safety

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

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

Less Human Error


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

You Don’t Have to Use a Tax Prep Program

You don’t have to use a costly tax preparation program to e-file your taxes–if you are tax savvy, have a very simple situation, and are prepared to learn, 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 guidance 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

When 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.

Vulnerable to Outages

Glitches are always possible when 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 filing attempt.

Does Not Allow for Certain Filing Situations

Though e-filing supports most tax situations, there are certain scenarios it does not support.  By way of instance, you can not file a return for somebody who passed away, you can’t attach images or PDFs to your return, nor will 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 cannot accommodate.

You Have a Rare Filing Situation

By way of instance, if you 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 tax return.

You Need to Build Your Tax Experience

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

You can fill out each form line-by-line and see first-hand all the calculations and factors your refund requires.

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

Increases Odds of Errors

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

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 result in missing forms or errors.

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, resulting in even longer delays than what you’d normally expect with a paper return.

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

  1. Make sure your name and Social Security number are on each page, both back and front. 
  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 based 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 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 should 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 own website, which include the following options:

  1.             Hire a tax professional to prepare your 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 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 duplicate.  You must file a paper tax return in this situation and mail it in with Form 14039, the”Identity Theft Affidavit,” notifying the IRS of this issue.

Key Takeaways

    1. E-filing is fast 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 overwhelming. 
    4. Alternatives to filing taxes on your own include hiring a tax professional or engaging in filing assistance programs.