This Is What You Need to Keep in Mind If You Plan to File Your Taxes Online
Unless filing taxes is your profession, you’re probably like me and don’t exactly get excited when tax time rolls around each year.
And if you’re like me, you also prefer taking the easiest and cheapest route possible.
This often means consulting the handy internet tax professionals. In fact, according to the IRS, 13.6 million returns were e-filed in 2017, which means there are a lot of people like me out there.
Although filing taxes online seems the least painful way to do your taxes (look, you don’t even have to put on clothes if you don’t want to), it doesn’t come without its pitfalls.
As someone who has e-filed for over 10 years (and made various mistakes while doing so) you should know some things before filing taxes online.
Free Doesn’t Always Mean Free
The good news if you’re short on funds, a number of websites and e-file services will help you file your taxes for free. However, if you are counting on free tax-filing, there are some caveats.
For instance, you might have to agree to direct deposit if you get a refund or the free offer might only apply to certain tax filers — meaning if you have to itemize, it might not be completely free.
Online Filing Might Cost You Much More Money
Not only is it important to be aware of the costs in case you’re short on funds but also because it might cost you more to file online than it would to just haul your paperwork in to a tax preparer.
If you are self-employed, have a side hustle or own a business, tax preparation is going to cost more than it would for someone who’s filing a 1040EZ form. Property owners and landlords also often have more complicated filing situations than others.
Also, when you consider the possible penalties and fees you might incur because of your own errors, it could cost you hundreds of dollars more to file yourself.
Filing Online Could Cost You More Than Money
It really isn’t just the cost of filing you should consider.
If you aren’t at all familiar with filing taxes online, or your situation falls into one of the more complicated areas of tax law, you could end up spending hours (and even days) trying to figure out how to file your taxes.
As someone who has painstakingly entered data into an online tax program for what seemed like days, I can honestly say there were times where it would have totally been worth it to have a tax preparer take over.
Make sure you consider whether the time and stress of filing online is worth it to you.
You Could Be On Your Own If You Are Audited
Getting audited is rare, but still a possibility.
According to NASDAQ, you had a 1 in 143 chance of being audited in 2017. (In the last 10 years, I have been the lucky winner twice.)
Most online tax software offers some kind of audit protection for an extra $50 to $100. However, in some cases, the audit protection or insurance only kicks in if the software is responsible for the error.
Which means in most situations, you are going to be on your own. You should ask yourself a couple of questions before you file online:
- Can I defend myself if I am audited?
- Is it worth paying an accountant in case I need extra help?
You Might Not Need to File At All
Before you go clicking away filing taxes online, you can save yourself a bunch of stress and anxiety by finding out if you’re even required to file. Some situations (albeit not nearly enough), don’t require you to file.
For example, if your income didn’t exceed the standard deduction plus one exemption and you aren’t another taxpayer’s dependent, you aren’t required to file a federal return. This could mean someone who is 65 years or older and received Social Security income, or a dependent whose income was less than the standard deduction — for 2017, it was $6,350.
If you aren’t sure whether or not you have to file, the IRS offers an online tax assistant that lets you know if you need to file.
A Stable Computer/Internet Connection is Vital
If you happen to live in an area where you can’t count on your internet to make it through Episode 1 of Season 1 of anything on Netflix, you might want to take a trip to your friend’s house for the good internet.
This is especially important if you’ve waited until the last minute to file your taxes. The IRS won’t care that you mistakenly believed your file went through before the deadline, and they certainly won’t waive late fees and penalties simply because your computer crashed.
You Might Not Be Able to E-File
Believe it or not, you could settle in, fill out page after page on the internet and then find out you aren’t able to e-file.
(This is another reason you don’t want to wait until the last minute to file.) Some of the situations that might prevent your taxes from being processed include:
- Incorrect Social Security numbers
- Income discrepancies (your W-2 info doesn’t match)
- Dependent claimed on a return already filed
You Might Still Need a Postage Stamp
Unfortunately, filing your taxes online doesn’t mean you’re completely free of the post office. You might still have to sign and mail in certain documents in order to get a particular credit or provision.
Even worse, sometimes you won’t know you have to mail something in until you’re already done filing online and then get the message to print and mail. Just make sure your printer is ready and plan to make a trip to the post office to send off any forms the IRS requires — even if you file online.
You Still Need to Create Your Own Paper Trail
At the very least, make sure you write down your user id and password — it’ll help you out a great deal next year if you use the same online tax service. It’s also wise to save a copy of your taxes, even if you don’t print them.
You also still need to keep receipts and statements for at least three years, according to the IRS. Although filing online means using less paper and materials, you still need to keep good records.
Your Identity Could Be Stolen
Some of the ways you can protect yourself against identity theft when you file online:
- Use a secure internet connection
- Update your computer with anti-spam and anti-virus protection
- Choose strong passwords and change them frequently
- Sign up for fraud alerts with the credit bureaus
With a little preparation, filing your taxes online can be the easy, pain-free, money-saving process you’ve been dreaming of.
Christina Majaski (@cmajaski) has covered personal finance for more than 10 years for various publications focusing on taxes, credit cards, finding great deals and saving money.