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Filing Online: Tax Tips to Ponder

These days, people are conducted as much business as possible online. It saves those painful trips to the post office, lets you pay bills in an instance, and let's you do your shopping while you're lounging in front of the TV. The federal government and the IRS have heard the calls of consumers and have now made it possible to file your taxes electronically. While filing online can work out perfectly for some people, for others, it may not be the best choice. Before you file online, weigh the pros and cons.

Filing your taxes online can be a great choice for a number of reasons. First, it is a fast way to get your taxes into the IRS so you get a return faster. When you file online, the IRS acknowledges the receipt of your tax return within two business days, and if you are due a refund, you will get a check within three weeks. If you choose to allow the IRS to electronically transfer your refund to your bank account, you may even be paid within days. Filing electronically also eliminates the risk of an error occurring with the processing of your return by the IRS. Someone keying your return into the system at the IRS could make a single keystroke error that could lead to a lengthy auditing process for you. When you send your returns online, it eliminates that potential for human error. Additionally, the IRS does not charge any fee for filing your taxes online.

While all of those benefits can be extremely helpful, filing online still has its drawbacks. The IRS does not charge a fee for online filing, but you have to use the services of a tax preparation agency to file online, and they may charge a fee. Not ever firm charges for online filing, but among those who do, you can expect to pay a $30 filing fee for your federal taxes, and another $30 for your state tax return.

The speed of electronic concerns can also be a problem if you owe taxes. As fast as the IRS turns around your refund when your electronic return indicates they owe you money, they expect you to act just as quickly if you owe them money. If you file electronically in January, you don't have until April 15 to pay that bill; you must put your check in the mail right away. When you owe money, the slow and steady snail mail method of tax filing is probably the best choice for you.

Another scary drawback to online filing is that the IRS has been auditing people who file their taxes electronically at a higher rate than people who use the old paper method. Your electronic tax return may make you stand out in the crowd more easily, especially if you file early, and the last thing you want to do is make an impression at the IRS!

There is no uniform answer that applies to everyone when deciding if you should file electronically or using the paper method. What is right for you depends on your financial situation. If you have a simple return that will net you a refund, electronic filing may be your best choice. If you owe money, the paper method may be best for you. If you are self employed or have a lot of deductions, both of which makes your return more likely to be audited than the average return, then there is no reason to file online and increase your chances of being audited even more. If you need advice about which method to choose, consult a financial advisor.