This is the third post in my “Taxes for Your Family” series.
I have mixed feelings on this issue.
On the one hand, I believe that it is empowering to do your own taxes. It seems intimidating at first, which makes it feel really good to realize it is not so hard after all. I did my own taxes with paper and pencil when I started working part time jobs in high school and college.
I went to tax store once in my twenties, but went back to doing it on my own when I realized they were just typing in the numbers I gave them. There are people that found it surprising and impressive that a young woman (well, I’m not so young anymore) would do her own taxes.
On the other hand, I believe in the value of professional help. (How could I not?) The taxes of a business owner, rental property owner, or active investor are more complicated than a W-2 employee. A tax professional can add value by saving time and money, avoiding mistakes, and reducing the stress in the process.
Professional help also ensures that the job gets done – more than one person has “confessed” to me that they filed their taxes late or not at all!
So, what are your options?
Tax Filing Options
1. Tax Preparation Software
There are many tax software providers out there, including Turbotax, TaxAct, TaxBrain and At Home (H&R Block).
The software does the calculations and prompts you for your information, which should eliminate math errors and ensure you don’t miss anything. You install the software on your computer or type in your data through a secure website.
You may be able to use tax preparation software at no cost for your Federal return. The Free File program is open to taxpayers with a 2012 Adjusted Gross Income (AGI) of $57,000 or less, and allows taxpayers to do their federal income tax returns using commercial online software provided by the Free File Alliance companies. You must go to IRS.gov to access Free File.
Cost: $0 – $100 or more, depending on your AGI and the complexity of your return.
2. Tax Professional
Tax professionals are not all equal. There may be a big difference in their education, experience and cost of their services.
A Certified Public Accountant (CPA) has passed a series of rigorous tests administered by the American Institute of Certified Public Accountants. Although there are many CPAs in the tax preparation industry, many more work in audit and corporate finance functions. CPAs may represent taxpayers before the Internal Revenue Service.
An Enrolled Agent (EA) is a federally authorized tax practitioner empowered by the U.S. Department of the Treasury to represent taxpayers before the IRS. Enrolled Agents have passed a comprehensive exam and have continuing professional education requirements. Unlike attorneys and CPAs, who are state licensed and who may or may not choose to specialize in taxes, all enrolled agents specialize in taxation.
Seasonal employees at the retail tax stores go through tax-specific training, but may not be very experienced and likely spend most of their time on simple returns. Compared to CPAs or EAs, registered tax return preparers have passed a minimal competence test on tax forms for individuals.
Cost: $100 – $1,000 or more, depending on the number of schedules and complexity of your return. If your taxes are very complex you should be spending more to get a higher level professional.
3. Do it Yourself
You can still mail in the forms, but 89% of taxpayers e-file these days1.
If your 2012 AGI is greater than $57,000, you can still file for free using Free File’s online fillable forms, which are the electronic versions of IRS paper forms. These are better than paper forms, because they do the math and can be e-filed.
Most would agree that the IRS forms are not as user-friendly as the tax preparation software providers.
Cost: You can file your federal tax return for free.
The Best Tax Filing Option for You
The more complex your tax return, the more value that professional help is likely to provide.
Your tax return is relatively complex if you itemize deductions, are subject to the AMT, own your business, are an active investor, or own rental property.
You can still do it on your own — tax preparation software can handle all these situations, but the process does start to get more complicated. The cost of mistakes – in terms of missed deductions or penalties — is also potentially greater at higher incomes.
On the other hand, if all your income is on a W-2 and you take the standard deduction, at least try doing it yourself. It will probably be easier than you expected. If you really don’t feel comfortable doing your taxes, get help.
How do You File Your Taxes?
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.