Do you look forward to your annual tax-filing duties? The truth is, Americans dread the task. Just how much anxiety it evokes might depend...
Do you look forward to your annual tax-filing duties?
The truth is, Americans dread the task. Just how much anxiety it evokes might depend on how you decide to complete your filing responsibilities.
You basically have two choices: Do your taxes yourself or turn the task over to a professional. But even if you do the latter, you still have to do most of the prep work.
Each option requires some additional considerations. First, ask yourself:
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• Do you have what it takes to self-file?
• Are you generally familiar with your tax situation? For example, do you know your filing status, understand what tax breaks (credits and deductions) you are eligible to claim and follow tax changes enough to know what might affect you?
• Are you comfortable doing research if you encounter a tax question with which you’re not familiar?
• Are you organized? Do you keep good records to help you complete the forms?
• Do you prefer no one else see your personal and financial details?
If you answered “yes” to these questions, doing your taxes yourself shouldn’t be too much of a problem.
Ways to file
Once you do choose self-filing, you have a few more choices to make.
You can file the old-fashioned way, mailing in a paper IRS Form 1040 and necessary schedules you filled out by hand.
You can use computer software that you load onto your PC or access directly online. The major vendors are TurboTax and TaxCut, but several smaller manufacturers offer filing programs.
As with any purchase, comparison shopping will help you find the tax software that best meets your needs at the price you are willing to pay.
Even if you use tax software, you still can print out your tax return and mail it to the IRS.
Many people who use software also file electronically. They (and the IRS) find this method to be quicker and, if you are getting a refund, your return will be processed sooner.
If you file electronically, check on whether you might be able to do so for free.
The Free File Alliance, a partnership of the IRS and tax-software manufacturers, allows many taxpayers to e-file at no cost. The criteria change slightly each year. Check the Free File Web page for details on the current eligibility guidelines.
Let someone else do it
Many taxpayers decide they prefer professional tax help to complete their returns. This could be the route for you if:
• You are intimidated by the tax-filing process.
• You don’t want to devote the time necessary to prepare your return.
• You’ve had a major change in your life that’s going to make filing more complex this year.
• You believe that by hiring a tax pro, you’ll save more than enough on your tax bill to cover the cost.
If a tax professional is appropriate, you must decide which type of pro to hire. There are different types with differing experience levels. Some meet stringent professional requirements; others have minimal accreditation.
Here are some of the more common choices when hiring tax-filing help.
• Franchise tax service: National chains, such as H&R Block and Jackson Hewitt, do a booming business. For many people, the companies are a good choice.
The tax preparers get some training on the most common tax situations and use software that helps ensure major questions and situations are addressed.
If your return is not that complicated, this could be an appropriate, relatively inexpensive choice.
• Enrolled agent: An enrolled agent, or EA, must pass an IRS-administered exam. Many are former IRS employees.
In addition to meeting a federal certification standard, an EA can represent you before the IRS if the agency has any questions about your return. Attorneys and CPAs also are able to provide this service.
The National Association of Enrolled Agents provides an online search tool at its Web site to help you find an EA in your area.
• Certified public accountant: A certified public accountant, or CPA, must pass a state’s qualifying exam for accounting. However, not all CPAs specialize in taxation, so check before you hire one.
If the CPA is a tax specialist, he or she can help you design a comprehensive tax plan, a service especially welcome if your financial and tax situations are more complex.
As with an EA and attorney, a CPA can represent you before the IRS.
• Tax attorney: A tax attorney has received extensive training and is required to complete continuing-education courses. This usually is the choice of taxpayers with very complex tax considerations, such as business ownership, estate-planning issues or sheltered-income goals.
Many tax attorneys specialize in specific areas, so check to make sure the one you select addresses your tax issues.
Also be prepared to pay substantially more for help from these tax pros.
Tax filing and planning is a unique exercise for each taxpayer. You have many options, so carefully assess your personal situation and consider just how much tax help you want or need in deciding which tax professional to hire.