The Pros and Cons of Filing Your Taxes Online and On Paper

Wondering about the pros and cons of filing your taxes online? Well, this tax season, do you go with e-filing or paper filing? You can avoid some of the drawbacks to paper filing and get your tax refund faster if you e-file your taxes. Of course, there are drawbacks to any filing method, even with the electronic filing program.

E-file vs. Paper File? Ask yourself these questions before choosing to e-file:

1. How complicated might my individual income tax return get? How many different types of income do you have? Your federal returns might be complicated if you have foreign investments, recently had an IRS audit, own multiple businesses, and run a cash-only laundromat like Michelle Yeoh’s character in Everything Everywhere All at Once.
2. Do I have any issues with my social security number? Your electronic signature relies on a valid social security number. Your tax returns may hit a snag if you’ve recently been a victim of identity theft.
3. Do I care more about getting my tax refund soon or protecting my security? You can guess whether it’s faster to paper file or e-file. You might also guess how likely it is for a hacker to steal your tax preparer’s basic filing information by paper.

Advantages of Online E-filing Federal Tax Returns

Speed. Simplicity. Accuracy.

One of the biggest cons to paper filing: The IRS prefers electronic filing options. If you think electronic tax returns are convenient for you, imagine it from the agency’s perspective. Imagine dozens and dozens of paper files arriving at the height of filing season, each deserving the full attention of an IRS agent and due diligence. No wonder the agency offers free, IRS-approved filing software to individual taxpayers who have an adjusted gross income of $72,000 or less. The IRS knows paper is a pain.

Paper returns mean manual data entry, which is a longer processing time and causes errors.

Electronic tax filing means your online tax return will be processed in one or two days, and the tax refund processed in two weeks. It’s sooner for simple tax returns and direct deposit. On the other hand, getting a refund from a paper tax return can take six weeks or longer, depending on how busy filing season gets.

Electronic Returns: Less of a Chance for Human Error and More Confidence

You try to file an accurate return with all the right tax forms, so how often does the filing process go awry? It depends on whether you’re using electronic or paper forms.

Estimates on the error rate for paper returns vary from 10 to 21 percent.

Estimates for the error rate for electronic tax returns also vary, but the IRS pegs it at 1 in 200 returns. Online tax returns are easier to correct, too. Most online or computer programs will automatically determine your income tax bracket, check the math on your original tax return, and catch data entry errors during the tax return preparation stage. That’s why there can be so many errors on paper returns. The IRS rules are coded into the tax software.

Accuracy is one of the best advantages of electronic filing. Another is confidence. The IRS will send email confirmation that they received your tax return if you file electronically. As a bonus, if the IRS discovers an error in your federal return, you’ll receive notice within a day or so.

E-file is the preferred filing method for individual taxpayers because electronic records are easier to manage. Taxes aren’t easy to manage, yet your financial software may draw data directly from previous federal returns.

Also, one of the biggest reasons not to file tax forms by paper is avoiding the actual paper. The cost of paper forms can be astronomical when you consider the number of people who would need to file. Electronic filing is cheap and environmentally friendly: no printer cartridges , no stamps, no gas for driving to the post office.

That said, paper returns are one of the acceptable filing options.

The Cons of E-Filing: Life’s Messy Sometimes

One of the biggest advantages to paper filing is that some tax situations are complex.

• If you recently changed your filing status.
• If you’re married, not using a joint tax return, and you live in a community property state like Texas.
• If your electronic filing software just doesn’t have a blank for whatever you need to say.

That’s not a problem for someone with simple federal tax returns.

The IRS knows real life doesn’t fit into neat little boxes. That’s one of the pros to paper filing: you can file some complicated returns to make sure you’re doing your taxes as accurately as possible. It takes more time filing by paper, sure. However, you might need a paper trail, especially if the forms and schedules you need aren’t yet supported on the e-file system.

You may be one of those people against the idea of paper filing. If you need a tax filing extension because your tax situation turned complex, the risks to paper filing might be worth braving.

Advantages of Paper Filing By Mail Can Reduce Some Risks

Some tax preparers have postulated that e-filing a return is a quicker way to a tax audit, since paper returns are more likely to sit on the shelf longer. The IRS may prefer electronic filing. However, you need to do what’s in your best interest, not the agency’s.

While electronic tax records are very convenient, they also pose a potential security risk.

With online tax preparation and filing software, it’s one more file on your computer that could conceivably be hacked, so some consideration to your computer security should be made. If you file electronically through a third-party preparer, then you have to trust that company to keep your information safe.

Look for an authorized IRS e-file provider licensed by the IRS if you’re choosing to electronically file your federal income taxes this year.

Pros And Cons Of Paper Filing And E-Filing Your Taxes: FAQ

1. What are the advantages of e-filing taxes?

There are actually several benefits to e-filing your taxes, such as:

• Faster submission and processing in contrast with the slower speed of paper returns.
• Since there are built-in error checks, the chance of mistakes going through is considerably reduced.
• It’s simply easier and more convenient to e-file your taxes from virtually anywhere there’s an internet connection.
• Direct deposit refunds are processed several orders of magnitude faster for e-filed returns.

2. What are the disadvantages of e-filing your taxes?

While generally considered to be more convenient than paper filing, e-filing is not without its drawbacks.

• Most tax preparation software programs charge a fee for using them to e-file, and the fee is bigger for more complex returns.

• Tax software can be confusing and may take some time for first-time users to get the hang of.

• Despite extensive efforts to make the process as secure as possible, transmitting personal financial data through the internet always carries a risk of breaches, however small.

3. Is e-filing more secure than a paper return?

While both carry certain risks, e-filing is indeed considered more secure than its physical counterpart since the data packets are encrypted and sent directly to the IRS without any intermediaries. Paper returns have to be handled by middlemen and can be lost or intercepted during transit.

4. Will my taxes be processed faster if I e-file my return?

Yes, by e-filing your taxes you’re ensuring that the process is significantly sped up since electronic submissions get processed within 24 hours and under 48 hours (if no problems arise with the return itself). Paper returns can take weeks to process, especially if you send your return during peak tax season.

5. Who shouldn’t e-file their taxes?

Someone with a very complex tax situation should consider paper filing instead of e-filing, since the more automated nature of the latter doesn’t lend itself too well to additions or clarifications before the return is processed. Also, people under a certain level of tech-savviness should consider paper filing as well. Finally, people who need to include forms or other documentation not supported by the e-filing software.

6. Can I amend my return after e-filing it?

Thanks to the addition of Form 1040-X to software platforms, amending an e-filed return is not just almost as convenient as doing so with a paper filing, but more straightforward as well.

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