When you submit a tax return electronically, you usually can get it processed faster, giving you quicker access to any refund money you’re supposed to get. There are other advantages, too, such as the ability to store a copy of your return conveniently on your computer or other media without wasting physical space. These kinds of benefits have lured thousands of people into e-filing, supported by the IRS’ preference for digital submissions. Nevertheless, e-filing still poses risks.
E-filing opens you up to serious financial danger in that, if an unauthorized individual is able to access your information, they can use that data to steal your identity. This is by far the biggest concern professionals have with this method of filing. According to Dan Caplinger of Daily Finance, between 2008 and 2011, tax-related cases of identity theft reached 1.1 million, a 20-fold increase. Caplinger also points out that part of the problem is an increase in bogus tax preparation companies. These organizations can take your money without actually forwarding your return to the IRS. More often, they simply take the data you submit and run with it, using the information to access your financial or other personal accounts.
Another issue related to identity theft and efiling is loss of information through spamming. Normally, the IRS sends you a confirmation that it has received your return if you efile. Cyber-criminals know this, so they send out false emails, claiming to be from the IRS. Under this disguise, they ask you for personal information, such as your Social Security Number or bank account information. If you’re not savvy enough to recognize that the IRS didn’t really send the email and you give the criminals the information they ask for, you can put your financial security in jeopardy.
According to some experts, filing your return electronically might increase your risk of getting audited. In fact, in Report JCS-1-08, Congress admitted that e-filing can increase audit risk, claiming that it allows the IRS to “target returns with audit potential.” The rationale is that having your information immediately ready in electronic form makes it very easy for the IRS to analyze it instantly for problems. The IRS is under strong pressure to perform this kind of analysis, because careful scrutiny of returns decreases the extent of tax fraud, and because it doesn’t want to give the impression that criminals can slip under the radar simply by choosing to e-file. The IRS also can use the money and other resources it saves through e-file processing to conduct more audits.
Some professionals do not feel that filing electronically increases audit risks. They assert that, because most e-filing software or systems have built-in error protection features, fewer mistakes that could trigger an audit show up. They also point out that tax agents can think more critically about the information you include, sometimes catching mistakes that the computers don’t.
Computer or Internet Glitches
Computers and other devices you might use to submit your taxes are not perfect. They can hiccup and lose their connections, for example. At the very least, that loss can mean you have to go back a page and re-enter some of your information. At the worst, it can translate to the IRS not receiving your return on time, letting the IRS hit you with late penalties. Even if you have a perfect connection, you still have to be extremely careful that you don’t make a data entry error. Making a mistake as you are entering may cause the IRS to reject the return, depending on what the mistake is and where it occurs. To ensure accuracy, you may want to conatact a San Antonio CPA.
E-filing presents benefits to both you, the taxpayer, and the IRS. Its risks are significant enough to justify a pause for thought before you click “submit,” even so. Identity theft, increased audit risk and the possibility of computer or Internet glitches are the three major problem areas. You might want to forgo e-filing despite its perceived convenience and the IRS’ push to support it because of these issues and consider using a San Antonio accountant like Michael Ketterman, CPA.
Caplinger, D. (2013). E-Filing Tips: How to Get Your Federal Tax Refund Safer and Faster
Rees, C. (2013). The Disturbing Trouble With E-Filing Your Taxes
Walker, J. (2012).Does E-Filing Increase Your Risk of an Audit?