The tax industry involves mountains of paperwork. Managing heaps of critical tax files and paperwork can be a daunting task as CPAs and tax professionals have a lot of other responsibilities. They must:
- Follow a code of ethics
- Be informed of any relevant state regulations pertaining to tax forms and laws
- Keep upskilling to stay current
Amidst all this bother, sending tax paperwork for signatures and expecting prompt responses to avoid delays in applications, extension requests, and return filings, adds to the pressure.
Doubting if this will ever change? Enter electronic signatures. The wizardry of eSignatures erases all the problems above. An eSignature is a digital alternative to pen-and-paper signatures. It is easy to use, safe, and cost-effective way to hasten tax paperwork involving signatures.
Allowing electronic signatures on tax forms
The Internal Revenue Service (IRS) has always accepted electronic signatures on specific forms, like the standard tax forms that are e-filed. Nevertheless, most of the other forms needed a wet-ink signature, or else the IRS wouldn’t recognize them.
After the COVID-19 pandemic struck, the IRS temporarily amended its stance on certain forms, accepting eSigns. While these forms still cannot be e-filed (they must be manually mailed), the IRS gave in and allowed taxpayers to sign the forms electronically. This allowed CPAs and tax preparers to reduce contact with their clients during a period when this was most necessary.
The first authorization of eSignatures on tax forms was from August 28, 2020, to December 31, 2020. Another extension was granted that covered the period between January 2021 and June 2021. The IRS again issued a memo on April 15, 2021, that extended e-signature use until December 31, 2021. As it stands, the language on their website tends to imply that electronic signatures are a permanent thing. They will accept the tax forms with them indefinitely.
Which types of e-signs are accepted?
To ensure the right person signs the forms, the IRS only recognizes certain types of electronic signatures. These include:
Third-party software signatures – Some electronic signature tools like Foxit eSign allow taxpayers to store their signatures electronically. Conveniently, these signatures can be used to sign IRS forms.
Typed names – If a taxpayer types their name on a specified digital entry field, and that “signature“ is placed on the tax form, the IRS will accept it. This is handy for people who don‘t have third-party software to create electronic signatures.
Digitized or scanned images – A signature written on a piece of paper and then fed to the computer through digital photography or scanning is also a recognized type of e-sign by the IRS.
Handwritten on a Screen – When a person writes their name on a digital pad using a finger, digital pen, or stylus, the IRS will recognize the signature on the form.
Handwritten with a stylus – The IRS allows taxpayers to write their names on a digital screen using a stylus. Usually, this is an excellent way of capturing and storing a signature, as it allows tax preparers to use it again if another tax form requires to be signed by the same taxpayer.
Which tax forms accept e-signatures?
As mentioned earlier, there are different forms that the IRS currently allows tax preparers and taxpayers to submit with an electronic signature. Below are some of the commonly used tax forms that can be eSigned easily:
Taxpayers use this form to grant their Electronic Return Originator (ERO) consent to generate their PIN on form 2360 or form 4868.
Taxpayers use this form to authorize their ERO to generate their PIN on forms 1040, 1040-SS, 1040 EZ, or 1040 A.
Form 4868 gives individuals a 6-month extension to file federal income tax returns. An extension of tax returns due April 15 will give you until October 15. You must submit the 4868 by the tax filing deadline to get an extension.
Form 11-C is used to register individuals accepting wagers. IRS also uses this form to collect the annual stamp tax and verify that the wagers tax is correctly reported on Form 730.
For, 8802 is a crucial tax document for companies and individuals who wish to benefit from tax treaties while operating from different countries. In other words, this form helps individuals to prove their US residency and lower the taxation rates in specific fields.
Form 1066 is filed to report the income, deductions, losses, and credits pertinent to a real estate mortgage investment conduit.
SS-4 is an IRS form USED to apply for an EIN (employer identification number). An EIN is a 9-digit number that businesses need for tax purposes.
The form is used to declare monthly tax returns for companies in the business of accepting bets/wagers or conducting lotteries or pools.
Every person must register with the IRS before engaging in activities that relate to income tax. Taxpayers use form 637 to apply for registration activities under sections 4682, 4222, and 4101.
This form is used to request more time to pay your taxes. When you submit for 1127, you will have to attach information about your income, expenses, assets, and liabilities to show that paying the tax will cause undue financial hardship.
This form is used to request a change in the tax year. At times, entities such as S Corporations, trusts, personal service corporations, or partnerships may need to retain or adopt a particular tax year.
This form is used to provide information to IRS about tax-exempt bond issues as required by section 149.
Sign your tax forms Foxit eSign aka eSign Genie to save time
Using an electronic signature tool like Foxit eSign aka eSign Genie eases filing pressures for CPAs and their clients during a period when time is of the essence. Returns can be filed faster, the Internal Revenue Service can process them quickly, and taxpayers can get refunds on time.
As we saw earlier, forms 8878 and 8879 are required by the IRS when CPAs or tax preparers file an e-return on behalf of a taxpayer. Usually, these forms act as a taxpayer’s proof that the return is accurate and complete. The taxpayer should fill them out before the return is electronically filed. On the other hand, tax preparers must collect these forms from their clients within three days of filing.
Getting the signed forms has always been a hurdle for preparers. However, that has changed with the acceptance of e-signatures by the IRS. E-signs speed up e-filing, freeing tax preparers for other pursuits, like devoting more time to building client relationships.
Case in point, through Foxit eSign aka eSign Genie, tax professionals can send their clients a link to the forms requiring signatures. Conveniently, clients can access these forms from their computer or mobile device. There is no need to install any software or app, making it an easy experience for even the least tech-savvy client.
In addition, you can easily track who reviewed, signed, or approved a form and who is delaying the signing process. Even better, the Foxit eSign aka eSign Genie automatically generates reminders to notify clients to review and sign the tax forms on time.
What’s more, when using this Digital Signature Software, you can be sure that the forms will reach the intended parties, thanks to security controls that verify the signatory’s identity. More so, it is impossible to falsify the e-signature or interfere with the integrity of the form in question. Lastly, all completed documents are digitally archived and accessible for future use by all relevant parties like we have complete guide for template for w9 tax form.
Guidelines for using an eSign solution
Digital signature for income tax forms makes return submission stress-free. However, tax preparers and CPAs must follow some guidelines when using digital signatures. The third-party software in use should meet IRS mandates for electronic signatures, including:
- Identifying the individual who signed the tax form
- Retaining the integrity of e-records
- Generating a digital trail which includes the taxpayer’s computer IP address, login identification, time stamps, etc.
Digital signature for income tax filing makes return submission stress-free
Tax season is usually a busy and demanding time for taxpayers and preparers alike. But the good thing is that electronic signatures streamline signature collection – reducing the process to a couple of clicks. This also lowers your opportunity costs and improves the value potential of your tax practice business.