# E-File Tax Software: What Small Businesses Need to Know | Capterra > Simplify small business tax compliance with e-file tax software. Learn when digital filing is mandatory, how platforms streamline data, and what to look for in a compliant tool. Source: https://www.capterra.com/resources/efile-tax-software-small-business-guidelines --- # E‑Filing Taxes as a Small Business: Where Software Adds Value and When It’s Necessary Written by: David Jani David JaniAuthor Senior Content Analyst Experience Since joining Capterra in 2022, I have focused on writing expertly researched and accessible thought leadership content to ... [See bio & all articles](https://www.capterra.com/resources/author/david-jani/) and edited by: Mehar Luthra Mehar LuthraEditor Experience I’ve been a team lead at Capterra for nearly three years, helping shape educational articles, thought leadership research reports, and content des... [See bio & all articles](https://www.capterra.com/resources/author/mehar-luthra/) Published April 27, 2026 9 min read Table of Contents - [What is e-file tax software?](#what-is-e-file-tax-software) - [When are small businesses required to e-file taxes?](#when-are-small-businesses-required-to-e-file-taxes) - [How e‑file tax software works for small businesses](#how-efile-tax-software-works-for-small-businesses) - [Key benefits of using e‑file tax software](#key-benefits-of-using-efile-tax-software) - [Challenges and limitations of e-file tax software](#challenges-and-limitations-of-e-file-tax-software) - [Frequently Asked Questions About E‑Filing Taxes](#frequently-asked-questions-about-efiling-taxes) TL;DR E‑filing taxes means submitting business tax returns electronically to authorities such as the IRS. It is required based on filing volume and form type, not revenue. Optimized [accounting software](https://www.capterra.com/accounting-software/) or e‑file tax software can support this process, reducing errors, applying current tax rules, and connecting accounting data directly to filings for businesses managing multiple forms, states, or advisors. E-filing taxes is no longer optional for many small businesses. Understanding when electronic filing is required and whether your accounting software is up to the task or if more dedicated tools, such as tax preparation or specific e-filing software, is needed helps avoid compliance gaps and last-minute fixes.    **Why to read on:** While it is still optional in some cases, e-filing taxes for businesses is increasingly non-negotiable across states. As the world of finance continues to digitize, this article explains how e-filing works and what firms need to know when submitting their taxes electronically at the state or federal level. ## What is e-file tax software? E-file tax software allows companies and individuals to submit tax forms electronically to federal or state authorities. It can include a submission portal, simplified digital documentation, and support throughout the process. This contrasts with paper filing, which requires manual preparation, lacks built-in error checks, and relies on physical submission, either by mail or in person. According to [Capterra’s 2026 software buying trends survey](https://www.capterra.com/resources/accounting-trends-technology-strategy/), 4% of firms don’t use any software for their accounting and finance at all, suggesting manual methods haven’t disappeared entirely.\* In terms of software, there is both public and private software, including tools provided by the IRS, such as IRS Direct File for individual taxes, as well as major software vendors like TurboTax, CashApp, and Intuit. In some cases, tools are free for individual users or businesses with simpler filing requirements. ## When are small businesses required to e-file taxes? Since 2023, smaller businesses have been required to e-file their returns if they submit ten or more returns in a calendar year. This applies when filing with any combination of forms, as long as at least 10 are filed in a year. [\[1\]](#sources) This applies to companies registered as: - Partnerships - LLCs - C-Corporations - S-Corporations **Tax return forms that can be e-filed with the IRS** **Tax return forms that can’t be e-filed with the IRS** 1042-S 1099-DA 1097-BTC W-2 1098 series 8966 1099 series 1094-B 3921 1094-C 3922 1095-B 5489 series 1095-C 8027 8955-SSA 8596 W-2G **_Source:_** _IRS [\[2\]](#sources)_ **_Note:_** _Based on information for calendar year 2026_  An important exception is Form W-2, which does count towards the ‘rule of ten’, but instead of being filed with the IRS, must be filed electronically directly with the Social Security Administration (SSA).  Other key exceptions are Form 8966, which needs to be filed through the Information Data Exchange Service (IDES) system, and Affordable Care Act (ACA) information returns (forms 1094-B, 1094-C, 1095-B, and 1095-C), which must be filed through the ACA Information Returns (AIR) System. ### State differences Whenever tax returns are submitted electronically at the federal level, they are then passed over to the individual taxpayer’s state Department of Revenue. However, some states have strict mandates requiring taxpayers to e-file. **State** **E‑filing required?** **Applies to** California Mandatory if return is prepared using software; waivers allowed for hardship Corporations, Partnerships, LLCs New York Mandatory Corporations, Partnerships, Fiduciaries, Sales & Withholding Wisconsin Mandatory Corp, S‑Corp, Partnership, Sales, Withholding Massachusetts Mandatory Corp, S-Corp, Financial institutions, Insurance companies, Partnerships Iowa Mandatory Corp, S‑Corp, Partnership, Franchise Virginia Mandatory Corporations **_Note:_** _based on information for calendar year 2026_ ### Optional e-filing requirements Individual taxpayers with adjusted gross incomes of $84,000 or less can submit their annual returns through IRS Free File, if they choose. However, for companies, the rules are different: they can choose not to file electronically if they file nine or fewer returns per year. Tax preparers can file returns for clients digitally, but must first register with the IRS as an e-file candidate. Aside from these options, companies and individuals can turn to available [tax preparation software](https://www.capterra.com/tax-preparation-software/) that offers e-filing.  ### Penalties for paper filing when e-filing is required There aren’t technically specific penalties for failing to e-file. However, failure to e-file when it is required equates to the company or individual not filing their returns at all. When returns aren’t filed, the IRS sets the following penalties:  **Penalty criteria** **Amount** Return filed 1-30 days late $60 Returns filed late by 31 days - August 1st of calendar year $130 Returns filed after August 1st of calendar year $340 per return Intentional disregard (demonstrable refusal to file returns) $680 per return **_Source:_** _IRS [\[3\]](#sources)_ **_Note:_** _Based on information for calendar year 2026_ ## How e‑file tax software works for small businesses Through tax year 2026, the IRS has used the Filing Information Returns Electronically (FIRE) System. However, at the end of tax season 2027, this will be retired and replaced.  The new Information Returns Intake (IRIS) System was introduced in 2022 and is available for use ahead of becoming the main e-filing portal for federal taxes from tax year 2027 onwards. Additionally, firms, CPAs, or tax preparers can use tax preparation software to prepare and file returns.  ### Typical e‑filing workflow Filing electronically typically follows five steps: gathering information, filling in the digital forms, checking for errors, and, finally, signing and filing the document(s). This requires the businesses or their nominated accountant or preparer to do the following: **1\. Collect the necessary data:** Firms must first gather all financial information, including profit-and-loss (P&L) statements, balance sheets, and payroll summaries. Prior-year returns can also prove useful as a reference for any carryforwards or elections. Accounting systems often allow businesses to export data for use in tax software or e-file portals, reducing entry effort and errors. Businesses at this stage should also ready information relevant to their identification and registration to use on the return form. **2\. Prepare the tax return in the software or electronic portal:** Once the data is imported, the tax preparation or portal software can usually map the relevant information to the forms you are filling out using automated population.  Tax software will usually assist with inputting further data through a question-and-answer format. Tax calculations will also be generated at this point using the current regulatory information. **3\. Check for errors:** If preparing your own taxes, review the information you've entered for calculation errors, missing fields, and identifying information such as Employer Identification Numbers (EINs) or Social Security Numbers (SSNs). **4\. Provide e-signatures and authorization:** After checking the information but before submitting the form, the software will prompt the user to authorize the process using an electronic PIN and signature. The signature is usually provided via Form 8453, which can be uploaded as a scanned file or mailed directly to the IRS.   **5.** **Transmit the return to the IRS and states:** Once signed, the return is electronically sent directly to the IRS. The return is usually filed with the individual state departments of revenue, though in some cases (and where allowed) businesses may opt to file state tax returns separately. If the IRS spots simple-to-fix calculation errors, it will return the form for amendment. If this happens, state filing is auto-rejected when linked as well. After submitting your return, you’ll receive official notification from the IRS or state agencies, acknowledging receipt of your information and whether it has been accepted or rejected. To actually pay the taxes owed, the money can either be wired to the agency along with the return or submitted later via direct debit or other means. Payment can be made immediately or up to the due date for each submitted form. Once everything else is completed, and as a final step, firms should maintain records digitally for reference or in case amended returns need to be filed. ## Key benefits of using e‑file tax software The ability to e-file taxes as a business offers taxpayers and tax authorities some significant benefits. For tax preparers and small businesses filing taxes, these include: - **Simpler data entry:** Importing data from a dedicated accounting system via spreadsheets, PDFs, bank feeds, or direct software integrations reduces manual effort and the risk of errors when entering tax forms.  - **Error-checking:** Software for e-filing includes logic checks and calculations, as well as pre-submission diagnostics for missing fields, inconsistencies, and invalid ID numbers.  - **Up-to-date compliance:** Tax rates, codes, and forms are kept up to date to reflect the current rules set by the IRS and state tax authorities, ensuring proper compliance. This is especially relevant, as 42% of businesses cite tariffs and market volatility in Capterra’s 2026 Software Buying Trends survey.\* - **Simplified workflows:** Using software can help businesses collect documents digitally, centralize records, and prepare for filings throughout the year. ## Challenges and limitations of e-file tax software E-filing is not without trade-offs. There are several important factors businesses should consider when planning to use specific software to file their taxes.  - **Pricing** for commercial tax filing software is typically based on the number of forms, the volume of returns, and the level of support needed. - **Set up** requires clean, organized data, which can take time to prepare initially. - **State tax regulations** can sometimes be a limiting factor for software that is not properly set up or designed for a business's specific state requirements. It is important to think through issues like these and other factors initially before adopting software to avoid potential headaches further down the line. ### How to choose the best e‑file tax software for your business When adopting dedicated software for e-filing taxes, whether it is a feature within a larger accounting system or a standalone option, there are a few boxes that need to be ticked. The IRS doesn’t endorse or approve any particular software for IRS e-file, but it does partner with a number of firms to provide electronic filing services to taxpayers. When choosing software, there are several essential factors to always consider before making a decision: - **Filing scope:** Does the software support the federal and state forms you file? - **Business structure:** What are the filing needs for your business sector and structure, and does the software provide that functionality? - **Integrations:** Does the software need to connect with another accounting or finance system you already use? - **Support and updates:** Does the software provide ongoing support for compliance as well as help during tax season, and at what cost? These factors can be crucial depending on the intended use of the chosen digital filing system for small businesses.  **Example:** An authorized IRS e-file agent, such as a tax preparer, must adhere to specific technical and compliance standards during setup and for ongoing submissions. Software that is designed to support these requirements will streamline the onboarding process and subsequent filings. Conversely, tools intended solely for individual filers are often inadequate for these professional needs. For a clearer view of how setup impacts the introduction of financial systems, see [Capterra’s guide for simple accounting software](https://www.capterra.com/resources/simple-accounting-software/). ## Frequently Asked Questions About E‑Filing Taxes What is e‑filing? E‑filing is the process of submitting tax returns electronically to a tax authority, such as the IRS or a state revenue agency. Instead of mailing paper forms, businesses use approved digital systems to transmit returns securely online. E‑filing is designed to improve accuracy, speed up processing, and reduce errors compared to manual submissions. How much does a small business have to make to e‑file taxes? There is no single income threshold that determines whether a small business must e‑file taxes. E‑filing requirements are usually based on the type of return, the number of forms filed, and the business structure, rather than revenue alone. For example, businesses filing multiple information returns or payroll forms are often required to submit them electronically, regardless of income level. What is the best free e‑file tax service? Free e‑file tax services are typically limited to simple tax situations, such as individual returns below certain income thresholds. For small businesses, free options may exist but often restrict the number of forms, the states supported, or the business entity types. Businesses with more complex filings should review limitations carefully before relying on a free service. Does the IRS require electronic filing for small businesses? In many cases, yes. The IRS requires electronic filing for certain business returns once filing volume or form‑type thresholds are met. These requirements can apply to payroll forms, information returns, partnerships, and corporations. Because rules can change, small businesses should confirm the current requirements each tax year or use e‑file tax software that automatically applies the correct filing method. * * * Sources 1. [IRS and Treasury issue final regulations on e-file for businesses](https://www.irs.gov/newsroom/irs-and-treasury-issue-final-regulations-on-e-file-for-businesses), IRS  2. [Topic no. 801, Who must file information returns electronically](https://www.irs.gov/taxtopics/tc801), IRS 3. [Information return penalties](https://www.irs.gov/payments/information-return-penalties), IRS * * * Looking for Accounting software?Check out Capterra's list of the [best Accounting software](https://www.capterra.com/accounting-software/) solutions. ### Was this article helpful? * * * ## About the Authors [### David Jani](https://www.capterra.com/resources/author/david-jani/) David Jani is a senior content analyst at Capterra. With a background in tech journalism, public relations, professional training, and marketing, he uses his extensive experience to investigate small business technology trends, with a focus on marketing and cybersecurity, to provide timely, actionable insights for small and midsize businesses. [### Mehar Luthra](https://www.capterra.com/resources/author/mehar-luthra/) Mehar has been a team lead at Capterra for nearly three years, helping shape educational articles, thought leadership research reports, and content designed to help businesses compare software to find the best fit. She's spent nearly a decade in the editorial space, having served as a content writer, editor, editorial head, and now as a team lead. ### RELATED READING - [Switching Accounting Software: Common Risks to Avoid in 2026](https://www.capterra.com/resources/switching-accounting-software-problems-risks/) - [Why Use Accounting Software? Buyers’ vs. Users' Priorities](https://www.capterra.com/resources/why-use-accounting-software/) - [How Much Does Accounting Software Cost in 2026? Real Buyer Budget Data](https://www.capterra.com/resources/accounting-software-cost/) - [Accounting Software by Industry: What to Look for Based on Your Business Type](https://www.capterra.com/resources/accounting-software-by-industry/) - [ERP for Small Businesses: Do You Need It and What to Look For](https://www.capterra.com/resources/does-your-small-business-need-erp/) - [Simple Accounting Software: What 'Easy to Use' Really Means According to 1,700+ Reviews](https://www.capterra.com/resources/simple-accounting-software/) - [How to Choose Accounting Software When You Have 500+ Options](https://www.capterra.com/resources/how-to-choose-accounting-software/) - [How To Choose the Right Accounting Software for Your Church](https://www.capterra.com/resources/how-to-choose-the-right-accounting-software-for-church/) - [Why Government Accounting Software is in Demand and What Buyers Need to Know Before Adopting](https://www.capterra.com/resources/government-accounting-software-public-sector-buyers/) **Capterra’s 2026 Software Buying Trends survey** was conducted online in August 2025 among 3,385 respondents in Australia (n=281), Brazil (n=278), Canada (n=293), France (n=283), Germany (n=279), India (n=260), Italy (n=263), Mexico (n=288), Spain (n=273), the U.K. (n=299), and the U.S. (n=588), at businesses across multiple industries, ages (1 year in business or longer), and sizes (5 or more employees). Business sizes represented in the survey include: 1,676 small (5-249 full-time employees), 822 midsize  (250-999), and 887 enterprise (1,000+). The goal of this study was to understand the timelines, organizational challenges, research behaviors, and adoption processes of business software buyers. Respondents were screened to ensure their involvement in business software purchasing decisions.