If you want to get your tax refund as soon as possible, forget about paper. The best way to get your money moving in your direction pronto is to e-file your return. But if you don't do it right, electronic tax filing can cause some big problems. Not to worry: DailyFinance is here to help you avoid those pitfalls. Here's how e-filing works, and how to get it done right.
Wait Just a Bit Longer
Ordinarily, you'd already have been able to e-file your return by now. But because of the new tax laws in the fiscal cliff deal, which was passed the day after New Year's, the IRS had to update forms and make sure that its e-filing acceptance computer software would properly reflect the new legislation. As a result, the IRS said that it wouldn't start accepting returns until Jan. 30.
The delay has been bad news for those who've come to rely on early e-filing to speed up their refunds. According to the IRS, nearly 100 million taxpayers chose to e-file their tax returns in 2011, and many of them did so in the hopes of reducing tax-return processing and turnaround time. The difference can be huge, with refunds available in as little as seven days in some cases through direct deposit into your bank account, compared to several weeks for paper returns in many cases.
The Benefits of E-Filing
Apart from letting you get your refund faster, e-filing can help you avoid common mistakes on your tax returns.
Error rates on paper returns are extremely high, and simple math errors are one of the major culprits. Tax software -- which many people who e-file use to prepare their returns -- tends to keep those calculations more accurate. But even if you want to do your taxes on your own, the fillable forms that you can find on the IRS filing website automatically double-check basic calculations to make sure your numbers add up correctly.
Moreover, e-filing no longer has to be expensive. Free File tax software is available to taxpayers with gross income of $57,000 or less, and it provides comprehensive assistance through a network of tax-preparation companies to help you make sure you get your returns done in an accurate and timely manner. Even those who earn more than that can use Free File fillable forms, although they won't provide you with any of the assistance and resources that full-blown tax software packages offer.
E-Filing and Identity Theft
One downside of the rise in popularity of e-filing is that it has massively increased tax-related identity-theft. Between 2008 and 2011, the number of identity-theft cases involving taxes rose 20-fold to more than 1.1 million.
If criminals are able to get your name and Social Security number, then they can forge other documents necessary to e-file a tax return and arrange to have your refund sent to them on a prepaid debit card, which can easily be converted into cash for a clean getaway. Moreover, bogus web sites offering free e-filing have proliferated, luring unsuspecting taxpayers into giving away sensitive personal information that fraudsters can use to do massive financial damage.
To protect yourself, follow some simple tips:
Worried about whether your preparer is legit? Let the IRS tell you who's on its approved list by entering your zip code here.
Be sure to sign your return. You won't actually provide a signature, but setting up a personal identification number is a smart move to protect your identity.
Watch for an acknowledgement notice from the IRS that it has received your return. If you don't get an email back within 48 hours, you'll know to check into whether something may have gone wrong.
Be Smart About E-Filing
More generally, there are some other things you should do to make the e-filing process go smoothly.
Make sure you have all your tax documents and records ready before you sit down to e-file your return, as having everything ready will make the whole process a lot simpler. Also, it's usually a bad idea to try to e-file before you have all of your tax forms in. Many financial companies don't send out forms for certain types of investment income until February, so you'll give an inaccurate statement of your income if you file Wednesday as soon as the e-filing doors are open.
To get more information on e-filing and free options for submitting your electronic return, check out the IRS website here.
Motley Fool contributor Dan Caplinger has long been an old-school paper filer -- at least until now. You can follow him on Twitter @DanCaplinger.