Warren Buffett Mental Models – What to Consider When Filing My Taxes Online

Is e-filing a better way to file your taxes? 

Americans and the IRS might not agree about everything, but they are largely on precisely the exact same page in regards to e-filing individual income tax returns.

The majority of individual income tax returns filed to the IRS are e-filed.  E-filing is a favorite because it is a win-win for taxpayers and the IRS.

If you e-file your federal income tax return, you save the IRS money because its employees do not have to spend time manually processing your return. And in return, you could find any refund you’re owed quicker, particularly if you have it directly deposited to your bank accounts.

However, what about security?  And can digital filing really give you access to all the forms that you may need in case you’ve got a complex tax situation?  Are there ever situations when you can’t e-file?  Let’s look at the benefits of e-filing, and whether it might be the best filing option for your needs.

If you’re thinking about e-filing, some of the advantages include:

  1. Quick confirmation your forms are obtained: The IRS will affirm a tax filing was received within one day of digital submission.  For paper filers, the IRS doesn’t send any acknowledgment your forms have arrived . 

    Timely refunds: When you submit a paper filing, it may take six to eight months to be given a tax refund.  With e-filing, you’ll get your money in three weeks or less.  Choosing direct deposit can also speed up the refund process.

  2. Reduced chance of mistakes: According to the IRS, there’s around a 1 percent error rate on e-filed yields, compared with a 20% rate of mistakes on paper filings.  The IRS also provides more information on issues discovered on e-filed yields compared with paper returns.

  3. Simple payment procedure: If you owe the IRS money, it’s easier to pay at your convenience if you e-file.  It’s possible to submit returns early and pay afterwards if needed, as long as you pay from the April 15 filing deadline.  And you’re able to schedule electronic funds transfers to send the IRS what you owe on a date of your choosing again, as long as the IRS receives your payment by Tax Day. You also have the option to pay your balance by making use of the IRS Direct pay service from the checking or savings account, submitting a credit card through a payment processor for a fee, or paying by check or money order. 

  4. Digital storage of tax data: Submitting returns electronically means there is an electronic backup of your tax records.  If something happens to your paperwork, then you’ll have a digital backup.

The good news: Most taxpayers do decide to e-file and get those advantages — and the process of doing so is simple.

The way to e-file a tax return?

    1. Utilize IRS Free File: If your adjusted gross income is $72,000 or less you may have the ability to use the IRS Free File program. 
    2. Free File Fillable Types — If your income is more than $72,000 and you’re comfortable doing your taxes without any assistance, you can use Free File Fillable Forms from the IRS. The types do the math for you and offer basic guidance.  You can simply do your federal return with these forms. 
    3. Utilize an online tax preparation service or tax software: Tax prep software and online filing services are options.  These options are a simple way to complete and e-file your own forms.  Some applications providers charge for their programs, Some are liberated.   The program asks you simple questions about your own life and financing to guide you through the completion of your forms.  
    4. Get free, in-person tax help: In most states, you will find volunteers to help prepare and e-file returns.  However, eligibility for free help is normally restricted based on income, and some providers cater to particular demographic groups. 
    5. Hire a paid preparer: Paid tax preparers, such as CPAs, can e-file returns for you if they’re authorized IRS e-file providers. The IRS maintains a database of authorized providers, but be aware this option is very likely to be the most costly one. 

Using online tax prep software is far and away the preferred approach of the majority of taxpayers.  Actually, the IRS says it anticipated over four in five tax returns to be submitted through tax return prep software.

Is e-filing really stable?

While e-filing is convenient, you could worry about safety — particularly with so many data breaches.  But experts agree this is not an issue that should deter you by e-filing.

“In actuality, it can be more secure than paper filing since you’re sending your personal information through an encrypted network as opposed to exposing your data in the mail.”

Dennis Chow, vice president of data security at SCIS Security, explains that the IRS has set safety measures in place to keep your information secure.  “Vendors typically utilize IRS specific APIs that need token sessions,” Chow says.  “All of this is routed over TLS encrypted connections.”

It’s very important to employ a trusted service to assist you record your taxes.  Chow advises not to e-file on a computer or use an online connection that is not confidential.

Bottom line

For many taxpayers, it is sensible to e-file a return because it is the most convenient way to file your tax information to the IRS and it allows for timely refunds and easy payment choices.  Just be certain to use tax preparation software from a dependable source, so that you can ensure the information which you provide to transmit to the IRS is going to be kept protected.