3 Options For How To Prepare Your Income Tax Returns
With tax season just around the corner, it is prudent to decide ahead of time how you are going to prepare your state and federal income taxes. The important thing to note is that you have several options. Therefore, you should carefully consider the pros and cons of each option before making your final decision. The bottom line is that what’s best for your neighbor will not necessarily work best for you.
Do Your Own Taxes
In terms of money, this is the cheapest option for doing your taxes. In terms of time, it might be the most expensive. If you have a relatively simple tax situation and ample time to chase down all of the right paperwork, you can save a lot of money by doing your own taxes. All of the tax return forms that you need are available on the IRS website. There is also free advice from the IRS and other online sources about how to file your taxes by yourself. (To find out what the tax rate schedules look like for 2011, see Federal Individual Income Tax Rate Schedules For 2011.)
If you do decide to go it alone this year, make sure that you research any new tax changes so that you are up to speed on the current tax code. You will also want to research any tax deductions that might apply to your tax situation. (For more information about tax deductions, see 7 Of The Most Overlooked Tax Deductions.)
- It’s free
- You are in control of how much time you put into it
- You might take pride in doing your own taxes
- You are more prone to make errors which could result in underreporting or an audit
- You are more prone to miss out on important credits and deductions
- It is time intensive, especially if you have a complicated tax situation
Use Tax Software
The market is flooded with tax software that helps individuals file their own taxes online. The most popular tax software is from H&R Block, TurboTax and TaxAct. Tax software offers a middle ground between filing your own taxes and hiring a tax professional. The software allows you to file your taxes online using a program that will assist you with the process. You will be charged depending on how complex your tax situation is. The most basic returns can cost as little as $20 dollars while most complex returns can cost $50 or more. (For discounts on TurboTax tax preparation, check out these TurboTax Coupons. For discounts on H&R Block tax preparation, check out these H&R Block Coupons.)
- It usually costs less than hiring a CPA
- It saves you time when compared to filing your own taxes
- It’s convenient because you can file your taxes at home using your computer
- It allows you to save previous tax returns online and on your computer
- It is not free
- Tax software is not as good as a CPA at answer questions specific to your tax situation
- You can still make mistakes despite the help offered to you online
Hire A CPA Or Tax Professional
This is likely the most expensive option for tax preparation. Certified professional accountants and other tax professionals can charge either an hourly or a flat fee for their services. The total cost will likely depend on how complex your individual tax situation is. While hiring a tax professional can be expensive, it is a good bet if you have an intricate tax profile. Hiring a professional is also a good idea if you have no idea how the tax system works or if you do not want to spend the time doing your own taxes. Note that you might be able to save money by using a tax preparation specialist such as H&R Block rather than an individual CPA.
It is always a good idea to shop around to look for a good rate. However, you also need to make sure that you get a competent and honest tax professional. Ask to see credentials before agreeing to let anyone do your taxes. If you smell something fishy, it’s probably a good idea to walk away. (For more information on tax fraud, see 12 Common Tax Return Scams To Avoid.)
- The tax professional will focus solely on your individual tax situation
- The tax professional might know about novel ways to save money that you or tax software programs do not know about
- After you give your professional all of your tax forms, you do not have to do anything else
- Hiring a professional can be expensive
- If you have a very simple tax profile, it might be a waste of money to hire a professional
- If you don’t perform a thorough background check on your tax profession, you risk hiring a dishonest or incompetent tax preparer
Before deciding how you want to file your taxes this year, you need to take three questions into consideration:
- How much money do you want to spend?
- How much time do you want to spend?
- How complex is your tax situation?
Once you have the answers to these three questions, you will be able to make the best decision for your tax situation.