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you can incur a penalty for not only owing and paying late but also for not filing on time. Typically, if you are receiving a refund at the federal level you have three years from the required filing date again usually April 15th - to process your return and receive your refund. However, if you wait even one day past the three-year window you are still required to file but you forfeit your refund and any credits that you were entitled to and could easily transition from receiving a refund to owing taxes plus interest and penalties. Fines are typically applied when illegal activity is involved.

Fourth, electronic filing provides more data security than sending your tax return through the mail. There are stories every year about the large amount of mail that is lost or stolen. Estimates in some years have been as high as a billion pieces of lost or misplaced mail. Electronic filing eliminates this problem and provides third-party verification, usually via email, that the IRS and state have both accepted your tax return. Keep in mind that electronic filing is only available for current year income tax returns at this time. Prior year tax returns that are filed late must be mailed in or sent by an IRS approved courier.

Fifth and finally, electronic filing is a good idea because you typically have to prepare your return with tax preparation software. There are a number of choices for this type of software but the two leading brands are Tax Cut and Turbo Tax. Both have their strengths and weaknesses and each year publications such as USAToday and various financial magazines rate these two leading and competing products.

So, why is using a software program to prepare your tax returns such a good idea? As anyone who's tried to manually complete tax forms knows, the income tax code, especially at the federal level is extremely complex. Reliable tax preparation software has a variety of tools to help the average person navigate this complicated maze to include interview questions, accuracy checks, prior year comparisons and more. You also then have a digital copy of your tax return should you need to provide it for another reason in the future.

Another strong feature of all the leading software is form matching to the financial data that the taxpayer enters into the program. This is a significant benefit provided by the software because when you receive a form such as a W-2 or bank interest statement (1099-INT) you simply key this information into the program which then pulls the correct form(s) and puts the data on the correct lines based on your particular tax profile. There are a myriad of thresholds, limits, and other qualifying conditions that affect which forms each of us will use and where the information will go on those forms. Everyone has their own tax profile and it varies every year because not only can your personal financial circumstances change from year to year - so does the tax code.

In the end, tax preparation software and electronic filing will provide you with a more reliable and organized way to prepare and submit your federal and state tax returns. There will always be exceptions but for the vast majority of us it's the best solution to a yearly requirement that often puts fear into the hearts of even the bravest individuals.

Learn more about this author, Teresa Stone.
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