Make Filing Your Taxes Less Painful and Less Costly
Beyond the drudgery and confusion associated with the task, there's the worry over how much money you'll need to shell out to get the fattest refund possible -- that is, if you're due one -- and whether it makes sense to go it alone or hire a pro to help you out.
To help take some of the guesswork out of the process, here's the lowdown on how to avoid some of the most costly mistakes you can make when doing your taxes yourself, a roundup of affordable (and sometimes free) online software options and tips on how to find a tax professional that suits your needs -- and budget.Going It Alone
For those brave souls who opt to go it alone, make sure to watch out for the most common errors cited by the IRS. While they may seem obvious, these flubs result in delayed and sometimes even smaller refund checks:
- Double check all figures if you're filing a paper return. While software can flag and prevent errors on e-file returns, math errors are all too common on paper returns.
- Attach W-2s and other forms that reflect tax withholding, as well as other required forms and schedules, to the front of their returns.
- If you owe tax, send a check or money order payable to the "United States Treasury."
- Make sure you enter the correct Social Security number.
- Check only one filing status. Also, check the appropriate exemption boxes.
- Make sure the bank routing and account numbers you've entered on the return for direct deposit of your refund are accurate. Incorrect numbers can delay your refund, or could cause your refund to be deposited into the wrong account.
- Make sure to sign and date the return. If you are filing a joint return, you and your spouse must each sign and date the return.
Crunching the Numbers Online
Roughly 70% of taxpayers (anyone with an adjusted gross income of $58,000 or less) are now eligible to use this free tax software program to prepare and electronically file their federal tax forms. The software, which is being offered through a partnership between the IRS and the Free File Alliance LLC, a group of private sector tax software companies, can be found here.
For state income taxes, 21 states, including Arizona, Georgia, Massachusetts, Michigan, New York, North Carolina, Oregon, and West Virginia, have established Free File programs to help taxpayers file state returns. Check with your state's Department of Revenue or Treasury to see if they offer a similar service.
Internal Revenue Service's Free File. ConsumerSearch and TopTenReviews. Each offers a basic free version of tax software for simple returns and first-time tax filers and sell more elaborate versions of their programs on the good-better-best continuum. Some of these programs let you take a test-drive before you sign up and pay.
Among the programs out there, TurboTax Deluxe gets some of the highest marks for its ease of use and appropriateness for all types of filers -- ranging from first-time filers to those who have undergone a big life change that will affect their tax filing, such as marriage or divorce. This online program, which costs $29.95 for a federal filing and $36.95 for each state filing, is packed with tax planning guidance, such as how changes like the purchase of a new home affect your return, and offers recommendations to help you get a larger refund next year based on this year's return. The program also looks for tax deductions as you go along, and rechecks them when you're done.
H&R Block Deluxe, which costs $29.99 for a federal filing and $32.95 for a state return, is also user friendly, leading filers through an online interview process. For questions, a "learn more" button offers an explanation. One key perk of this program is that it offers a free audit support session with a tax pro. In the (hopefully) unlikely event of an audit, an enrolled agent will guide you through the process, including helping you with all correspondence with the IRS and State Department of Revenue.
At $17.95 for both a federal and state filing, TaxACT Deluxe is the least expensive of the three software programs.
Like TurboTax Deluxe, TaxACT Deluxe, is appropriate for a variety of filers. The program includes a section called Life Events that offers information specific to big life changes such as marriage, divorce or the purchase of a home. TaxACT Deluxe also include TaxTutor Guidance, a feature that provides tax tips and strategies, including money-saving deductions, explanations for tax-law changes and pitfalls to avoid as you prepare your return. The program also looks for tax deductions and credits as the user works through the online interview process.
Hiring a Tax Pro
If you have a complicated tax return -- or just simply don't have the time or patience to prepare your own taxes -- go with a professional. If you are filing taxes as a sole proprietor -- say you're a freelancer or a consultant -- or you started your own business, bought or sold a home, moved several times, have multiple state returns to prepare or went through a divorce, tapping a professional is likely your best bet, advises Edward Karl, vice president of taxation for the American Institute of Certified Public Accountants.
There is a hierarchy of expertise among "tax professionals" so choose your preparer based on your needs.
Commercial preparers are the folks you typically deal with at your local H&R Block. If you're a single, recent college graduate with no dependents and a simple financial history, using a commercial preparer is the way to go.
Enrolled agents must pass a test administered by the IRS and can help those who may have a more complicated return but don't want to shell out the cash for a Certified Public Accountant.
CPAs, which have the highest level of professional training and must be licensed by the state, follow a code of conduct and professional ethics. Use a CPA if your tax return is particularly complex and if you seek more extensive tax planning advice.
Tax preparation costs vary by location, who is preparing your return, and the complexity of your return. For example, in New York, it can cost anywhere from $50 to $1,000, according to Manhattan-based CPA Howard Samuels.
The IRS offers free tax preparation by certified volunteers for low-to-moderate income taxpayers who qualify, generally those who make $49,000 or less, as well as free tax counseling for the elderly. What's more, military personnel and their families are entitled to free tax preparation. Some universities also run low-income tax clinics. Check for ones in your area.
When looking for someone to prepare your taxes, word of mouth is often your best bet. Ask friends or colleagues you trust for referrals in your area. Or, you can consult the list provided by The National Association of Tax Professionals (NATP), which includes individual tax preparers, enrolled agents, certified public accountants, accountants, attorneys and financial planners.
The IRS offers a database of IRS-Authorized tax professionals who have been accepted to participate in the electronic filing (IRS e-file) program on its website, where people can search for tax pros by location.