A Complete Guide On Electronic Filing of Taxes

Electronic Filing (E-file) is a paperless process to send tax returns using the internet. This is the result of fast advancement and evolution of our technology. The presence of internet or direct connections and the scarcity of our natural resources, ultimately the reason for the shift. This means you will no longer stand in long queues to file income tax returns.

Internal Revenue Services has used e-file since 1990’s, it was a tremendous success and it is the new standard method for filing tax returns. Recently, e-filing gained popularity for it saves the agency’s time and money. Now is the better time to switch to a new standard. It offers advantages and benefits as follows:

• It is easy, efficient and eliminates the filling out of paper line by line. The software has features that use question-and-answer format. It will help taxpayers to avoid mistakes in doing calculations.
• It has security features. It uses modern encryption technology to protect tax returns from identity theft refund fraud. The bank account information is also protected.
• It is convenient. Taxpayers can file tax returns personally without living their own houses.
• Refunds are faster. IRS will receive your electronic proof of submission within 48 hours. Your tax returns can be immediately checked for some errors and some missing information. Approximately 89% of returns are accepted the first time they are transmitted. If the taxpayer is entitled to a refund, immediate reimbursement is possible.
• It is free. Free filing is available online.
• Payments options are available. Taxpayers can do payments electronically from their bank accounts.

Guidelines for E-filing

Step 1. How to get started. Start at the IRS website (www.irs.gov) and choose “free file” under “Filing & Payment”. Option 2 is to browse the list of free file companies.

Step 2. Determine your Eligibility. First, determine your eligibility for using a particular company. Each company has a simple description of its eligibility criteria for using its free service.

Step 3. Link to free file Company Services. After choosing the company, click on the company’s name, which sends you directly to the company’s website. Then follow the instructions on that company website to begin the preparations for your tax returns.

Step 4. If you do not qualify for the selected company’s free offer, continue with the preparation and e-filing process with this company; be aware that you will be charged a fee for preparing and e-filing federal tax returns.

Step 5. Prepare and E-file your federal income tax returns on a company’s website. The company software prepares and e-files your income tax returns using proprietary processes and system over the internet. Electronically filed returns are transmitted by the company to the IRS using the established e-file system. An acknowledgment file, notifying you that the return has been either accepted or rejected, is sent via email from the company.

Refunds and payments using Free File are handled the same way as they are for the other e-filing options.

Electronic Forms Provided

For individual taxpayers, IRS allows users to file tax returns for free. A company that files Form 1040 is a service charge. A company with income is less than $64,000 annually is free of charge. But those which make more than $64,000 a year shall fill a heavy form.

For self-employed people and businesses, they can choose from the different e-services provided in accordance to their need it includes Form 2290 and Forms 1099.

The software provides IRS Form 990, Form 990-EZ and Form 990-N for the tax exempted organizations. It must be filed annually.

Challenges in E-filing

Currently, IRS has the capacity to electronically process K-1s that the company flows through entity returns. However, IRS is unable to electronically process all the forms that accompany those of trusts and partnership.

Taxation is complex, for e-filers filing up electronic form is challenging, some of them are:

• Accurate computations of income which includes other sources, not just salary.
• The tendency to forget passwords, since income tax filing is done once a year. In such case, the password should be reset and they have to answer questions which were possibly forgotten also.
• Calculation of deductions. Some taxpayers are not aware of some expenses which form part of the deductions.
• ITR Forms have several rows and columns that must fill up. The challenge of entering the correct details manually otherwise errors in the returns.