What is Electronic Filing (E-Filing)?

What is Electronic Filing (E-Filing)?

Electronic filing, or e-filing, refers to the process of filing one’s taxes electronically, using online software approved by the relevant tax authority of the respective country.

E-file is sometimes restricted to certain professionals and/or businesses with a minimum annual income cap. Whether individuals, small businesses, and other professionals are allowed to e-file depends from country to country, and sometimes even within a country, province by province, depending on the tax regulations and government rules.

Benefits of Electronic Filing

Electronic filing is becoming increasingly popular because of the wide array of benefits it brings to the table:

1. Convenient and flexible

E-filing has brought about increased flexibility in the filing of taxes and is a lot more convenient since one’s taxes can now be filed from the comfort of their home or workspace at their own time. They can do it whenever they wish to, as it no longer serves to be a 9 to 5 task.

2. Saves time and money

E-filing saves a huge amount of time and money. When taxes are e-filed, whether it be for businesses, professions, or individuals, the data is directly transmitted online from the e-filer’s servers to the tax agency’s servers. The process saves a lot of time and money from transferring data from paper to online input and saves the agency from making transmission errors.

E-filing also reduces time and effort for both the tax agency and the taxpayer because it is generally much easier and faster to process e-file tax returns than paper returns, thereby saving a lot of time on both ends.

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3. Increased accuracy

Since transmission errors and the like can be avoided through e-filing, it leads to increased data records accuracy and the overall tax filing process.

4. Less room for manipulation of records and window dressing

E-filing leaves less room for manipulation of data records and window dressing. With e-filing, online data availability and interconnectivity are much more profound, and linking or tracing data back to a tax-paying unit is made much easier and faster with e-filing.

5. Increased authenticity and accountability

E-filing has also led to increased authenticity to the process of tax filing and increased accountability on both the tax agency and the taxpayer. Paper filing is slightly more ambiguous because there is high ambiguity on the receipt of tax papers and tax records.

With e-filing, notification throughout the tax filing process and/or confirmation of receipt or rejections are delivered within 24 hours, thereby increasing the level of certainty of the entire process. It makes it less ambiguous than it usually is via the paper filing method.

Limitations on E-Filing

The IRS recommends only taxpayers comfortable doing their own taxes e-file without help from a professional or tax preparation software.

IRS Free File is only available for returns for the most recent tax year. Prior-year returns going back two years can still be filed electronically by registered tax preparers.

The IRS accepts e-filed returns for the most recent year until a November cutoff date typically announced in October, subject to the same timeliness rules as paper returns.

An electronic filing could be rejected over mistakes in entering a social security number or a payer’s identification number, an omitted form, or a misspelled name. Returns can typically be e-filed again once such errors are fixed, the IRS says. If all else fails and the deadline looms, send in a paper return instead.