Electronic Tax Filing is in Your Future - Are You Ready?

Electronic tax filing (or e-filing) is a process where tax returns are submitted to the Internal Revenue Service or your state’s department of taxation through the Internet or direct connection, usually without the need to submit any paper documents.  E-filing can be done through tax preparation software programs, Web sites run by software producers or state tax departments, or by your tax professional.

Have you e-filed your tax return yet?  According to the IRS, 87 million of the 145 million US personal returns filed in 2008 (about 60%) were filed electronically.  They have a goal of reaching 80% in the next few years.  To promote this goal, mandatory e-filing has been instituted for most federal returns prepared by professional tax preparers beginning in 2011 for tax year 2010.  In addition, 21 states already require tax professionals to file electronically, among them VA, MD, CA and NY.  The rest allow optional e-filing, but more and more are moving toward mandatory e-filing.  E-filing is also available for many business returns and is mandatory for certain payroll and income tax returns for larger companies. 

Mandatory or not, e-filing can provide benefits to both taxpayers and governments.  Chief among these is increased speed and accuracy of return and refund processing.  Tax refunds can be received in as little as 7-10 days, and many basic errors can be caught by the programs and corrected before submission.  Paper storage and manual processing errors are eliminated.  This can save the government money in labor and space costs, and it can save taxpayers time and money by ending time spent at the post office, certified mailing costs, and providing a quick electronic delivery receipt to prove your return was filed on time. 

For those who wish to reduce the paper clutter in their homes, copies of your tax data and returns can be delivered to you electronically for storage eliminating another addition to the piles of dusty papers in your attic or basement.  In addition, the IRS uses a secure and confidential encrypted data system that makes accidental or malicious release of your data virtually impossible.  If you owe money you can file your return when it’s done and make your payment later, nearer to the due date.  With electronic payment systems, payments can be pre-programmed to be withdrawn from your bank account on a pre-selected date, eliminating the chance of forgetting to pay.

However you file your tax returns, get on board with electronic filing this year.  Ask your tax professional to e-file your returns or do it yourself at home.  You’ll be glad you did.