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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 submitting have their pros and cons.  E-filing is safe, faster, and 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

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 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 on your return, you’ll be given a rejection notice (usually within 24-48 hours), and the notice will typically indicate what triggered the actions and what you can do to fix 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 information, is transmitted directly to the IRS computer system.

Your refund is likely to be processed quicker because e-filing means the IRS does not have 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 mistake when calculating your return because IRS employees don’t need to manually enter your return line-by-line into its system.

You Don’t Have to Use a Tax Prep Program

You don’t need to use a costly tax preparation program to e-file your taxes–if you are tax savvy, have a 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 may 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 preparation tools which are free, many of the leading tax prep companies 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 type of features you want.

Vulnerable to Outages

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

Doesn’t Allow for Certain Filing Situations

Though e-filing supports most tax scenarios, there are certain situations it doesn’t support.  By way of instance, you can’t file a return for someone who passed away, you can not 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 helpful in certain scenarios that e-filing cannot accommodate.

You’ve Got a Rare Filing Situation

For example, if you will need to prepare a tax return for someone who passed away, you must file a paper return.  Also, paper filing lets you print and submit pictures 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 complete forms without ever telling you which forms it’s filing for your benefit.

If you want to know about, and better review, the details of your tax return, including all forms related to your tax situation, filing a paper return provides the transparency that you crave. You can fill out every form line-by-line and see first-hand all of the calculations and considerations your refund requires.

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

Increases Odds of Errors

Data transcribers in the IRS must manually input taxpayer information for every paper return they receive.  Because of this, it might lead to errors that you may have to fix through an amended return.

Overwhelming for Beginners

For filers who try paper filing after years of electronic filing, gathering all of 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 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 won’t accept it.  Newbie paper filers often forget this fact, leading to even longer delays than what you’d normally expect with a paper return.

You can do a few things to streamline your yield submission when you file by paper:

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

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

  4. Get an automatic extension if you’re mailing your return close to 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 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 are eligible. There are particular requirements for e-filing or paper filing should 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 duplicate.  You have to file a paper tax return in this case and mail it in with Form 14039, the”Identity Theft Affidavit,” notifying the IRS of this matter.

Key Takeaways

    1. E-filing is fast 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 may be overpowering. 
    4. Alternatives to filing taxes on your own include hiring a tax pro or engaging in filing assistance programs.