Pros and Cons of E-Filing Taxes

George Chidi
by George Chidi, Contributor

Have you always filed electronically? Never done it before? Here are a few things to consider.

The Pros of E-File

Accuracy: Estimates for the error rate for paper returns vary from 10 to 21 percent. Estimates for the error rate for electronic returns also vary, but the IRS pegs it at 1 in 200. Electronic returns are easier to correct, too. Most online or computer programs will automatically check the math on a return and catch data entry errors.

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Speed: An electronically-filed return will be processed by the IRS in 1 or 2 days, while it takes much longer for a paper return. As a result, refunds for an e-filed return will be processed in about 2 weeks  10 days if you have a very simple return, without itemized deductions and with Direct Deposit — while it may take 6 weeks for a refund to arrive after submitting a paper tax return.  

Confirmation: The IRS immediately acknowledges the receipt of a tax return when it is filed electronically. And if the IRS discovers a defect in the filing, you'll receive notice within a day or so.

Recordkeeping: Electronic records are generally easier to work with than paper records when you're entering data or referring to prior year taxes. Some software programs will be able to draw data directly from previously-filed returns, speeding up the tax preparation process. 

Cheap and Environmentally-Friendly: No paper. No toner cartridge use. No stamps. No gas needed to drive to the Post Office. And if your Adjusted Gross Income (AGI) is $58,000 or less, you can file for free using IRS-approved Free File software.

READ: Can Your Dog Fetch a Tax Deduction?

The Cons of E-File

Some Items Can't Be Filed Electronically: Some tax situations are complicated enough for the IRS to require a paper trail. For example, if you're married filing separately and you live in a state with community property rules, you may need to file by paper. Certain tax forms and schedules simply cannot be e-filed because they aren't (yet) supported by the Modernized e-File (MeF) System. You can visit the IRS.gov website for a list of accepted forms and schedules.

Risk for Audit: 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. While the IRS may prefer electronic filing, you need to do what's in your best interest — not the agency's interest.

Security: While electronic tax records are very convenient, they also carry a potential security risk. 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 will keep your information safe. Look for an Authorized IRS e-file Provider that has been licensed by the IRS.

READ: Top Options for E-Filing Your Tax Return