One of the questions you might be asking yourself this tax season is how should you go about preparing taxes? Should you prepare your taxes on your own or hire someone to do it? Purchase software to help you navigate through the latest changes to the tax code? The answer will differ from one person to another based on many factors. Below we present a short summary of available options, costs and average time needed to complete your return. Then I’ll bring up some issues to consider when making a final decision.
Level of Confidence
Preparing taxes has to be taken seriously and your level of confidence based on history of preparing taxes or general knowledge of tax code will determine whether or not you do it yourself. A relatively simple tax return does not call for assistance from a tax layer or a CPA, and even if this is the first time preparing taxes, tax software is a good place to start. It is geared towards general public and handles very well credits and deductions. Yet, no matter how confident you feel about getting the job done, it wouldn’t hurt occasionally to have your tax return reviewed or done by someone qualified to do that. This way you make sure your numbers are correct and are not missing any deductions (money you’re not getting back) or risking an IRS audit for underpaying.
Once your return becomes more complicated due to change in marital status, becoming a parent, a business owner (or changes to a business structure), or any change in your life that affects your finances, the best idea is to contact an experienced preparer. If you want to prepare taxes on your own, I would still suggest you have the taxes prepared in this new format at least for couple of years. This way you get to learn more about what to consider, any new due dates, how and what to itemize. Tax code is like a growing organism, which gets bigger every year. In 2010 there were close to 600 changes to it that bring the average to 3 changes every 2 days. Good luck keeping up with that.
In many cases cost of tax return preparation will determine how it gets done. Some things to evaluate before making a decision:
- If you prepare your own returns – Do you have free time to do it or do you prepare them while giving up on something else? How much is your time worth if you could be doing something else? Could you pick up an extra shift at work instead? If you’re a parent, do you hire someone to look over your kids while you’re working on the returns?
- The cheapest option might not always be the best – Ask around for prices and explain very well your situation in order to get the most accurate quote for having the return prepared; if your tax return is somewhat complicated and requires extra work, a flat fee listed for the service might not apply (my case); ask your friends and colleagues for references, you can also check with Better Business Bureau to make sure the tax preparer you chose has a good record.
- When purchasing software to help you prepare taxes, read what’s included first; yes, there are many free options but they often apply to a simple return and most of the times only for federal taxes, to submit state tax return will cost you extra; some companies (H&R Block) offer software and an office visit to have one of their tax pros review your return to ensure accuracy.
- There are dozens of companies providing tax return software; usually they offer 2 to 4 versions depending on complexity level of your return; look up few of them and compare prices for the services you need; remember that prices change annually so if you selected one product over another based on price, go back to the discarded option next year, perhaps it’s the solution this time around.