With April 15th only about a month away, many Americans are now starting to contemplate the preparation of their tax returns. There are two alternatives for preparing your individual tax return; you can either do it yourself or you can have someone else do it for you. However, there are several options within each of these alternatives. Here is a look at your different options and some thoughts on each.
Do it yourself – Some people are very comfortable with the tax filing system, keep good records and know how to research tax issues that may arise from their return. For these people, they should do it themselves. These are the most common options for the do it yourself crowd:
1. Manually –There are still a significant number of people that go to the library, get their forms together, sharpen their pencils, put new batteries in their calculator and get to work. You can also download the forms from the IRS website. The cost of doing a return manually is negligible. However, I recommend this only for very simple returns. The reason is the likelihood of a calculation error increases exponentially as your tax return becomes more complex. Proceed with caution.
2. Tax preparation software - Tax preparation software does a very respectable job in preparing your return. You can either download the software to your computer or complete the return online. In the past, I have used both Turbo Tax and Tax Cut. Both cost about $60, although the price can increase due to complexities. Those that meet certain income requirements can also use the IRS Free File service. If you understand the basics of the tax system, tax preparation software is a very good option.
Using a tax preparer – For those that look at the tax law with horror, a tax preparer may be your best route. Here are the options for those in search of a tax preparer:
1. Free volunteer service - There are several not for profit organizations that will provide free tax preparation for qualified persons. Community Tax Aid of Boston will prepare tax return for free for individuals who earn less than $30,000 per year or for married couples earning less than $40,000. They have several sites in Boston. (For full disclosure, I volunteered at this organization for many years.) The IRS’ Volunteer Income Tax Assistance program also matches volunteers with qualifying tax payers for free preparation.
2. Retail tax preparers – There are several national tax franchises, including HR Block and Jackson Hewitt. If you are looking to get your tax return done relatively quickly and for a modest fee, you may consider using one of these companies. The level of skill and experience of your preparer can vary significantly and there is a chance your preparer is only slightly more qualified than you are at preparing returns. Inquire with the person as to their background and training. Prices will vary for this service depending on complexity, but expect to pay at least $250 for this service.
3. Certified Public Accountant – A CPA is an accountant that is licensed by the state. There are education, experience and ethics requirements needed to be a CPA. CPA’s will likely have the highest level of quality and expertise to prepare your tax return. If your tax situation is more complex, you should consider this route. Prices will vary depending on your situation, but will probably exceed $250. Your CPA’s expertise should also include tax planning and savings techniques that are not available from the other options. If you are looking for a CPA, you can call around to some local firms, search the web, ask a friend or check out the Massachusetts Society for CPA’s website for more information. I am being completely biased when I say using a CPA is the best option for most people.
Those are the options as seen from the eyes of a CPA. Please provide me with some feedback as to your tax preparation experience.
The author is solely responsible for the content.