According to the Internal Revenue Service (IRS), 90 percent of Americans now file their taxes online. More and more people are choosing to e-file for a reason, and it’s mostly due to convenience. After all, Americans have grown accustomed to handling the bulk of their finances online already, whether they’re opening a high-yield savings account, using an online banking platform to pay bills or utilizing an online brokerage firm to open a Roth IRA. When you think of it that way, it’s no wonder filing taxes online seems like the way to go.
The benefits of virtual tax filing are nearly limitless. Not only does filing online let you access an array of powerful tax preparation software programs that streamline the process and may even help you secure a larger refund, but filing online can be significantly faster, too. In fact, the IRS reports that the majority of people (9 out of 10) who e-file their taxes receive their refund in less than 21 days.
Steps to e-file taxes
If this is the first year you’ve considered e-filing your taxes, you’ll be happy to know there are plenty of tools available that can help expedite the process. Here are all the steps you’ll want to consider as you move through the e-filing process.
Gather all the paperwork you need to file your taxes
Start by gathering all the required paperwork you’ll need to file. This includes any W-2 forms you’ve received from employers you worked for in the last year, as well as any 1099s you received for work with clients or for miscellaneous income you earned.
Other paperwork you may need to gather might include details on interest you earned on bank accounts, investment income, student loan interest paid within the last year, mortgage statements and information on contributions you’ve made to an IRA or a Health Savings Account (HSA). While you can gather all the required paperwork for your tax return as you move through the e-filing process, putting this information together early can save you time later on.
Look into free e-filing options
Next, consider whether you are a candidate to file your taxes electronically without paying for expensive software or tax preparation help from a third party provider. Fortunately, the IRS offers an array of Free File options and online forms that make filing your federal taxes for free a real possibility.
Once you access the IRS website, you’ll find that separate forms are available for taxpayers who earned above or below $69,000 within the year. If you know what information goes on your Form 1040, you can type it in and send it, for free, directly to the IRS.
Compare tax software programs
Tax software giants like H&R Block and TurboTax tweak their e-filing options and make them better every single year. As a result, the tax software programs of today make e-filing your taxes an absolute breeze, mostly because they use an intuitive question and answer format that walks you through the process with ease.
While tax software companies offer paid plans with more benefits, most of the big players also offer a free version that lets consumers with simple tax returns file federal, and potentially even state taxes, for free. With H&R Block’s 2020 software, for example, a free online version is available for taxpayers paid on a basic W-2. However, there are paid versions if you’re a homeowner, a freelancer or a small business owner who has a more complex tax situation with unique considerations and deductions to consider.
Other major tax preparation software companies offering a free version for the 2020 tax filing season include TaxSlayer, TurboTax and TaxAct. If you intend to pay for a plan, make sure you compare each of the top tax preparation companies to see what they include for each tier of service they offer. Hint: Their included services are not always the same, with some offering more assistance and robust protections, like audit assistance.
When to e-file taxes
Just like every year, your tax return is due on April 15th, 2020. However, you do have the option to request an extension if you find you need more time. The IRS notes that you need to file Form 4868 in order to qualify for an automatic six-month extension on your federal return.
Other than that, you can e-file your taxes whenever you’re ready — and whenever you have all the required paperwork you’ll need including employer and income information.
States that don’t allow e-filing
All states that charge a state income tax allow you to e-file your state tax return. However, some states do not allow you to e-file a state-only return, meaning they require you to e-file state and federal taxes together.
According to TaxSlayer, states that do not allow state-only filing online include Alabama, Arizona, Arkansas, Kansas, Michigan, Mississippi, Oklahoma and Oregon — “If you wish to electronically file any of these state returns, you must e-file your Federal return at the same time.”
Also note that some states don’t have a state income tax including Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. If you live in one of these states, you do not need to file a state tax return at all. In New Hampshire and Tennessee, you only need to file a state tax return if you’re paying taxes on interest and dividend income.