Small Business Tax Filing: Taking Your Taxes Digital

Small Business Tax Filing: Taking Your Taxes Digital


The IRS offers a convenient, fast option for filing tax returns electronically, yet many small business owners still file by paper. This is a slower process in the best of times, but COVID-19 has now caused a backlog of millions of paper returns.

If you’re wondering whether to take your small business tax filing digital, Beth Logan, President of the Massachusetts Society of Enrolled Agents and tax professional with Kozlog Tax Advisers, explains why this can be a smart move.

Why Do Some Business Owners Still File Paper Returns?

Logan sees business owners continuing to file paper returns for a few reasons. Some do it because they’re worried about digital security and protecting their private data. Others do it simply because it’s part of their annual routine.

And others, most interestingly, still mail in their returns and paper checks because it delays any payment from quickly coming out of their bank account — as opposed to e-filing, which instantly deducts money from the account on the payment date.

Logan also observes that paper filing may be linked with dishonest tax preparers. The IRS requires all professional tax preparers to submit an identification number (PTIN) when they e-file a return. Someone without this number can’t e-file for their clients.

If your tax preparer insists you paper file, it could be a sign that they don’t have the right legal credentials.

A small business owner is frustrated with his paper tax return.

What Are the Benefits of Filing Digitally?

According to Logan, there are quite a few reasons to e-file — other than, of course, speed. Paper returns must be reviewed by an IRS employee, and given staffing issues from COVID-19, some returns have been delayed for months.

Meanwhile, with e-filing, Logan says, “Returns are usually processed within a few weeks and, assuming the return is not flagged, refunds are generally deposited within 3-6 weeks.”

Here are a few other advantages to small business tax filing.

Error Reduction

Tax programs can detect problems with your return before you e-file. Manually writing in data increases the chance of errors — the type that can delay the acceptance of your return and future refund.

In rare situations, when the program or software makes a mistake, Logan notes that the IRS is generally more forgiving because they know it was likely a glitch that affected many taxpayers, compared to an error you made on your own.

Peace of Mind

E-filing also guarantees that your return and payment don’t get lost in the mail. “I had a client who had to paper file. After a year, he still didn’t have his refund. I contacted the IRS, and they did not have a record of his paper filed return,” Logan says.

If you can’t prove that you filed and sent a check on time, you also risk owing the IRS interest and late payment penalties.

Less Hassle

There is far less admin work involved with e-filing — and overall, it can be a much more efficient process for your business. You or one of your employees won’t have to spend time printing copies of the return, filling them out, writing a check, going to the post office and sending everything by certified mail.

Why Not Try It Out?

Tax software can help with small business tax preparation in a major way. These programs can automatically track your business income and expenses throughout the year. They also run the calculations for your return, so you don’t need to go over everything with a calculator the night before the deadline.

And while you’re likely accustomed to that — truly handling every aspect of your business yourself — consider letting technology (and an expert) take filing taxes off your to-do list. You can trust the process. In fact, Logan points out that e-filing and tax software are not new technologies.

“We’ve been e-filing since the 90s,” she says. “We’ve got it figured out.”

As you research this new system for small business tax preparation, it could make sense to meet with a professional. Check out National Funding’s blog for other tax articles, including how to hire an accountant.