E-Filing: How to File Your Taxes Electronically, IRS Free File and More

E-Filing: How to File Your Taxes Electronically, IRS Free File and More
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Almost 144 million taxpayers e-filed their 2019 federal tax returns as of July 2020, according to the Internal Revenue Service. This number was up 9.7 percent from the year before. Not only is the e-filing option more convenient for taxpayers, but the IRS prefers it, too, encouraging taxpayers to file electronically. Its Free File program that makes filing taxes affordable for all.

E-filing can result in receiving your tax refund faster because IRS employees don’t have to process returns manually, saving the agency time and money while streamlining the tax filing process.

The Pros and Cons of E-filing

E-filing, or electronic filing, is a way of preparing and filing your taxes digitally without having to manually fill out and mail in paper forms. Paper returns take much longer for the IRS to receive and process, and they're more likely to contain errors than their electronically-filed counterparts. You can use tax preparation software to e-file your return, or you can pay a tax professional who is an authorized e-file provider to prepare your taxes for you.

Some other advantages of electronic filing include 24-hour confirmation that the IRS has received your forms, as well as faster refunds – especially when you choose direct deposit. And there's just a 1 percent error rate among returns that are e-filed as opposed to a whopping 20 percent error rate found with mailed paper returns, according to the IRS.

A common e-filing drawback is that you might find yourself needing to include paper forms or other supporting documents along with your tax return, but there are many IRS forms that can be submitted electronically – if there's an electronic version of said form available.

The IRS also accepts forms and supporting documents in PDF format, but not all tax preparation software supports this. You can e-file your return and mail additional forms to the IRS as a last resort, but this requires filling out yet another form, IRS Form 8453, the U.S. Individual Income Tax Transmittal for an IRS e-file Return.

Using IRS Free File

Free File is an IRS service through which all taxpayers can prepare their returns for free. Millions of taxpayers use it annually, but some aren’t aware that it’s available to them. The service is made possible through a partnership with the Free File Alliance. According to the IRS website, "Free File is a partnership between the IRS and the Free File Alliance, a group of industry-leading private-sector tax preparation companies that have agreed to provide free commercial online tax preparation and electronic filing."

Many popular tax preparation companies offer IRS Free File services for federal tax returns, including H&R Block® and TaxAct®. You can use Free File software for assistance in preparing your return if your adjusted gross income was $69,000 or less during the 2019 tax year, the tax return you'd file in 2020. This income threshold increases periodically, so check the Free File website early in 2021 to find out if you can earn slightly more. Some software providers set even lower limits.

You'll have to use the IRS Free File Fillable Forms if you earned more than $69,000 or the applicable threshold in a given tax year. The forms are still free, but you won't have software to guide you. The IRS recommends that taxpayers only use Free File Fillable Forms if they’re accustomed to, and comfortable with, filing their own taxes. The Free File Fillable Forms provide only basic guidance with filling out your tax return, whereas using IRS Free File through a private tax preparation company does most of the work for you.

You can also take advantage of this program if you're self-employed. You can file an extension online through Free File in addition to tax preparation assistance, and some providers can assist with your state returns as well, although this service might not always be free.

IRS Volunteer Tax Assistance

Taxpayers have four different e-filing options for federal tax returns. You can use an IRS-authorized e-file provider’s commercial software, the IRS Free File or Free Fillable Forms program, a paid IRS-authorized tax preparer, or free in-person tax preparation help from volunteers who can also electronically prepare your tax returns. The first choice, online filing using a tax preparation service, is a less costly option than hiring a tax preparer because you can do it yourself by following the software’s instructions.

You might be able to participate in one of the IRS volunteer programs to assist you with filing your taxes on time through the Volunteer Income Tax Assistance, or VITA, program. VITA “offers free tax help to people who generally make $56,000 or less as of the 2020 filing season, persons with disabilities, and limited English-speaking taxpayers who need assistance in preparing their own tax returns," according to the IRS. If you qualify, certified volunteers will help you prepare a basic tax return and will file it for you electronically. Unfortunately, VITA offices remained closed as of October 2020 due to the coronavirus.

Another free filing program assists taxpayers who are 60 years of age and older with preparing their taxes or with any pension and retirement-related issues that senior taxpayers might face in their retirement years. Tax Counseling for the Elderly, or TCE, is a volunteer program staffed by IRS-certified volunteers from various private or public nonprofit agencies and organizations, according to the Benefits.gov website. Call ahead to find out if individual program offices are open during the coronavirus pandemic.

Visit the IRS or Benefits.gov websites for more information on these volunteer programs, such as locations, qualification criteria or what you need to bring with you.

IRS Form 8879

You must sign IRS Form 8879, the IRS e-file Signature Authorization, before a certified public accountant or anyone else who prepared your taxes can submit your return on your behalf. The IRS requires that nearly all tax preparers file their clients' returns electronically, so your CPA should be familiar with the form.

It used to be that your tax preparer would prepare, print and deliver your tax return to you for mailing. Now, tax preparers have the onus of submitting the return, and the process isn't complete until the return is e-filed and accepted by the IRS or state agencies. Form 8879 includes a declaration that you must sign and date, which states that you've reviewed your tax return and that the information on Form 8879 matches the information reported on your return.

Signing the declaration authorizes the Electronic Return Originator, or ERO, to use a personal identification number to electronically submit your return. Your tax preparer, or ERO, knows to collect this signature from you, however, but make sure that your tax preparer has had you sign this form to be on the safe side because they can't electronically file your taxes without it.