How Should You Do Your Taxes?

I recently opened my mail and found my first tax documents for 2015. You know what that means…it’s the start of tax season! If you’re wondering if there’s an easier and/or cheaper way of accurately doing your taxes, here are some options:

Are you eligible for free help?

The IRS offers free tax assistance through the VITA (Volunteer Income Tax Assistance) and TCE (Tax Counseling for the Elderly) programs to those who earn $53k or less, the disabled, the elderly, and limited English speakers. You can search for a local VITA or TCE site here. If your adjusted gross income is below $60k, you can also qualify for free file software here. Just be aware that these free options only cover very basic returns.

Are you comfortable doing it yourself?

If you don’t qualify for the options above, you can still access free fillable tax forms here. However, they just do the math and offer only basic guidance so you have to be able and willing to do your taxes by yourself. Also, all your info is deleted on Oct 20 so you won’t have access to it after that unless you save it somewhere else.

If you don’t qualify for the free options and need more guidance than the fillable forms but are still able and willing to do your own taxes, you can use tax software at a relatively low cost. You can compare leading tax software programs here. Unlike the fillable forms, they guide you with a series of questions. I personally use TurboTax  and actually find it kind of fun (yeah, I’m pretty weird). I also like being able to easily access my previous returns online and having my information from the previous return pre-populated when I do a return each year.

Would you rather have someone else do it?

Hiring a preparer is generally more expensive than doing it yourself. According to a 2010 study, the average cost is $229 or $129 for a 1040 and state return with no itemized deductions. Compare that to software programs that are typically $60 or less.

For a simple return, your local H&R Block, Jackson Hewitt, or mom and pop tax preparation service should be fine. But for more complex situations, you might want to hire an Enrolled Agent (EA). Enrolled Agents are licensed by the IRS to prepare individual income tax returns and represent taxpayers before the IRS. However, they’re generally more expensive than non-credentialed preparers. You can search for one here.

Finally, if you need to have a business return done or are looking for more comprehensive financial planning in addition to tax preparation, you might want to hire a Certified Public Accountant (CPA). Just be aware that not all CPAs specialize in taxes. In particular, consider hiring one who’s also a Personal Financial Specialists (PFS) and can provide comprehensive financial planning as well. Keep in mind that their fees tend to be the highest of preparers so it might be overkill for just an individual income tax return.

I personally thought about switching to a preparer this year due to the added complexity of owning rental properties but I decided to trying sticking with TurboTax. I figured having to do it on my own would be a good learning experience. I just hope I don’t end up like our former Secretary of the Treasury.

How about you? Do you have any experiences or tips to share about the best way to prepare taxes? Leave your thoughts in the comments section below.

 

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