4 reasons not to file a paper tax return

Nowadays, it seems like everything is being done electronically, and taxes are no exception. While many taxpayers prefer to go the paper filing route, there are several benefits to submitting your tax return online. In fact, the IRS has a Free File tool that lets lower-income taxpayers electronically file at no cost. If you're planning to file a paper tax return this year, here are four reasons to change your tune.

1. You're more likely to make a mistake

Math errors happen to the best of us, but they're especially likely when you're doing your taxes by hand. Unfortunately, even an honest mistake could spell trouble and cause you undue stress. You might, for example, have your refund delayed or your taxes audited if you fall victim to simple math. The IRS reports that the error rate for paper tax returns is as high as 21%, whereas it's less than 1% for electronically-filed returns. While filing electronically won't guarantee that you won't make an error (you're still required to input the correct numbers), it can certainly lower your chances.

2. You might miss out on valuable tax credits or deductions

One benefit of using tax software is that it will often steer you toward tax credits or deductions you otherwise may not know about. For example, if you're a low earner, you might be eligible for the Earned Income Tax Credit. Parents, meanwhile, can explore the Child Tax Credit and the Child and Dependent Care Credit.

There are also numerous deductions available to taxpayers, such as write-offs geared toward homeowners, medical expenses, and charitable contributions. Most electronic programs are designed to ask questions that lead you to the right tax breaks, but if you stick to a paper return, you risk losing out on those credits and deductions -- and the money they could've otherwise saved you.

See a guide to the most commonly-used U.S. tax forms:

Guide to commonly-used US tax forms
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Guide to commonly-used US tax forms

The 1040 family of tax forms is for federal income tax and is absolutely essential for all.

The 1040EZ form is the simplest version and is typically filed by those who:

  • Have no dependents
  • Are younger than 65
  • Earned less than $100,000
  • Don’t plan to itemize deductions

Form 1040A is more comprehensive than 1040EZ, but simpler than the regular 1040. It's beneficial for those who earn less than $100,000 and don’t have self-employment income -- but who want to make adjustments to their taxable income, such as child tax credits or deductions for student-loan interest. Note that it doesn't allow for itemized deductions.

Form 1040 is filled out by those who make $100,000 or more, have self-employment income or plan to itemize deductions.

The W-2 is completed by employers document each employee's earnings for the calendar year. You will want to take a look at this tax form for important information you'll need to fill out your 1040, 1040A or 1040EZ. 
The 1098 form is filled out by those who:
  • paid interest on a mortgage
  • paid interest on a student loan 
  • paid college tuition
  • donated a motor vehicle to charity

The 1099 series is reports all income that isn’t salary, wages or tips, and must be reported on both the state and federal level.

1099-DIV reports dividends, distributions, capital gains and federal income tax withheld from investment accounts, including mutual fund accounts.

1099-INT trakcs interest income earned on investments.

1099-OID (Original Issue Discount) is provided if you received more than the stated redemption price on maturing bonds.

1099-MISC documents self-employment earnings, as well as miscellaneous income such as royalties, commissions or rents. It covers all non-employee income that is not derived from investments.

If you receive a refund that you're unable to pay in full, you can request a monthly installment plan using Form 9465.
Don't forget to notify the IRS if you move! Use Form 8822 to change your address with the Internal Revenue Service. Otherwise, notices, refunds paid with a paper check and other correspondence relating to your personal, gift and estate taxes will be sent to your former address.
Anyone who has been employed by a company has completed a Form W-9. The W-9 is used by employers for payroll purposes -- and the information on the W-9 is used to prepare employee paychecks during the year and W-2 forms at the end of the year. 
The W-4 is an IRS form completed for employers know how much money to withhold from your paycheck for federal taxes. Accurately completing your W-4 can both ensure you don't have a big balance due at tax time and also prevent you from overpaying your taxes.

3. You'll delay your refund

A good 80% of tax filers get a refund each year, but if you submit a paper return, you'll probably end up waiting longer for your money. The IRS reports that it typically takes six to eight weeks to issue refunds for paper returns. File electronically, on the other hand, and you might see your refund in three weeks or less.

Furthermore, if you send in a paper return, you'll usually need to wait about a month before your refund information even becomes available. Submit your taxes electronically, and you'll be able to check your refund status within 24 hours.

4. You're less likely to spot audit red flags

Though less than 1% of tax returns are selected for an audit, there are certain tax moves that can increase your chances of making the list. Thankfully, much of the tax software out there is equipped to help you assess your audit risk. Many programs have tools that can help you identify audit-triggering activity so you have a chance to make corrections before submitting your return. If you file a paper return, on the other hand, you won't be made aware of potential red flags that could land you in hot water with the IRS.

Finally, though it happens rarely, when you send in a paper return, there's always the potential for it to get lost in the mail. Granted, you can have your return certified to establish a record of your submission, but there's something to be said for submitting a return electronically and getting confirmation that it actually went through.

If you are going to file a paper tax return this year, make sure to go through the process carefully, and for math's sake, whip out that calculator any time there are numbers involved. The last thing you want is to encounter a hassle as a result of human error.

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