What is Electronic Tax filing?

in Tax Information

With the technology advances in the past decade, fewer and fewer people are using traditional mail to send in their tax returns. The current method of choice for delivering tax returns to the Internal Revenue Service is through electronic tax filing, or basically using the Internet to complete and send in the paperwork needed for an income tax filing. The IRS has partnerships with several software programs to allow this service to be done as well as their own proprietary program, called Free File, that allows people who make under $57,000 to complete and file their federal income taxes without any extra charges.

The benefits of using electronic tax filing, also called e-filing, are quite extensive. The software programs take much of the potential for mistakes out of the equation by doing all of the calculation for the user. In most cases, a person will simply need to go through a series of questions and forms where they enter their financial data and the return will be generated automatically. Another advantage is that these online programs allow a person to enter their bank details and have the refund deposited directly into their bank accounts instead of waiting for a check to arrive.

One thing to remember is that the cost of federal and state income tax returns may be different. Free File, the free service from the IRS is only available for federal income tax and a person will also need to find a service that will complete their state return. Many states have official programs that will also complete the services for free.

The cost of using an electronic filing system vary depending on the actual software or program that is being used as well as the person’s geographical location. A person can decide to buy retail software that usually includes an e-filing fee or go to online services that offer the software for free, but then charge for sending the file to the IRS. In both cases, the prices can range from being completely free for qualified taxpayers to upwards of $100 in some cases. Most of these software programs are nearly identical and few offer any real advantage over others. For a person who wants the highest possible return with the convenience of electronic filing, the best bet is to go to a tax professional.

While traditional tax experts still use regular appointments and interviews to construct an income tax return for their clients, the majority depend on electronic tax filing to deliver the information to the IRS. The difference between a tax professional and one of the many available software programs is that the former is able to provide tax advice for the future as well as the present. In addition, the professional will be able to discover potentially beneficial credits that are often omitted or skipped over with the computer programs. Computers may be extremely advanced in many respects, but the best tax preparation still comes from tax professionals with years of experience in the business and a deep knowledge of tax codes and policies.

Have a tax question? Ask one of our tax professionals.