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What 20% of Taxpayers Are Doing Wrong

By Matthew Frankel, CFP® - Updated Feb 15, 2017 at 11:37AM

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Are you still filing a paper return? Here's why it's finally time to get with the electronic age.

Nowadays, the vast majority of American taxpayers file their returns electronically, either directly or through a third-party program such as Turbo Tax.

However, there is a pretty significant group that chooses to do things the old-fashioned way. In fact, in the 2013 tax year, almost 20% of all tax returns were filed on paper. Now, I understand that some people might be set in their ways, but there are some big advantages to jumping on the e-filing bandwagon.

Less risk of an audit
Out of all the reasons your tax return could possibly be audited, one of the most common is simple errors such as incorrect addition. Well, when you file electronically, the software does your calculations for you and makes sure all of the numbers add up correctly.

In fact, the difference in errors between paper returns and e-filed returns is staggering. According to the IRS, 21% of paper returns contain errors, as opposed to just 0.5% of electronic returns. Many software programs actually guarantee the accuracy of their calculations and offer to pay for any discrepancy resulting from an error they caused.

In addition, most software programs that electronically file your taxes have some sort of "audit check" feature, combing through your entire return for typical IRS "red flags" that might trigger an audit. While an audit is unlikely no matter what type of return you file, it doesn't hurt to minimize your chances as much as possible.

You'll get your refund faster
The last time I filed a paper return, I mailed it in late March and got my refund from the IRS sometime in June. And if you file right at the deadline, it could take even longer. The IRS claims that a paper-filed tax refund should be issued within six to eight weeks, but there is simply no reason you should wait that long.

Refund processing times are much shorter for electronically filed returns. In fact, the IRS issues most refunds to e-file taxpayers within 21 days. And with direct deposit, the money goes straight into your bank account.

You can even keep track of the progress of your tax return, as well as when you can expect your refund, through the IRS' "where's my refund?" program.

There is simply no way to receive your refund this fast if you file a paper return unless you get a "refund anticipation loan," which can be rather costly.

Prevent identity theft
Your tax return has pretty much all of the information an identity thief would need to make your life miserable -- your Social Security number, address, employment information, and your bank account information if you chose direct deposit. So it makes sense to keep it as safe as possible.

When you e-file, your return is encrypted and secure. Of course, the chance of your mailed return being stolen in transit is very small; but it's still a chance that isn't worth taking.

The reasons don't stop here
Speaking of costly, filing your return electronically might not cost you a dime. The IRS offers its own free tax-preparation and e-filing software called IRS Free File. Filing is free for those taxpayers whose income is less than $58,000, and the electronic versions of IRS forms are free to anyone.

And if you are a senior citizen, are disabled, or speak little or no English, you might qualify for free tax-preparation help from IRS-certified volunteers.

E-filing is also significantly easier than paper filing. Over the past several years, the software programs available to file tax returns have gotten more and more sophisticated and make filling out complex forms extremely easy. They also know what to look for to help prevent you from being audited.

In a nutshell, e-filing your taxes is simply the best way to go. It saves you time, ensures the numbers on your return add up correctly, and allows you to enjoy your refund faster.

Last year, 122 million taxpayers filed their taxes electronically. There's no good reason why you shouldn't join the club this year.

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