Tax season is here, and you may want to figure out how best to file that return. Do you jump online to file, rely on desktop tax software or hire a pro to get through the process? Here’s a quick guide:
You have three basic choices, assuming you don’t want to use paper and pencil. You can file online, using software hosted on the Web. You can install software onto your computer, print out the forms and mail in the results or file electronically over the Internet. Or you can hire a professional.
If you’re the tech-savvy, single taxpayer with no mortgage, no itemized deductions or multiple income sources, then you might consider filing your taxes online, using software hosted on the Web. Tax return information is protected through encryption.
The cost of doing your taxes online can be nothing or up to $70, depending on which program you use, the complexity of your return, whether a human tax preparer offers help and whether both federal and state returns are filed online. H&R Block’s Web site sells various options, including a “$14.95 basic e-file” and a $44.95 package that lets people file both federal and state returns and one “Ask a Tax Advisor” session, or one online chat, e-mail or phone conversation with a tax expert.
Taxpayers who earn $54,000 a year or less also can file their federal taxes online for free through the Internal Revenue Service’s “Free File” program. Filers must first go to the IRS Web site and then choose one of 19 tax preparation companies from a list provided. You cannot go directly to the providers' sites.
If you are able to file using only the simple 1040 EZ or 1040A forms you can file your federal taxes for free using Intuit’s TurboTax Online. It will cost an extra $25, however, to file state taxes online using the software.
If you are owed a tax refund (as 70 percent of taxpayers typically are) you can get the money electronically deposited into a bank account and sometimes even divide it among multiple accounts. Those who owe the IRS can pay via credit card or allow the IRS to take money electronically from your account on a particular date.
Paying taxes online is growing in popularity, as people have become accustomed to shopping online and performing other financial transactions on the Internet. “It’s the fastest-growing segment for the do-it-yourself tax software business,” said Julie Miller, spokeswoman for Intuit, the Mountain View, Calif., company that makes TurboTax and Quicken financial software.
Say you’ve got computer know-how, but your tax picture requires more than one page. Maybe you’re married and own a house.
Try doing it yourself, using tax software purchased in a retail store or downloaded from the Internet. It costs about the same as Web-hosted tax software, but the data is stored on your desktop computer. Both Intuit's TurboTax and H&R Block's TaxCut software come in various versions depending on your needs.
Improvements to the software now guide people through the process with interview questions; their answers then automatically populate an IRS form. “They never have to see that form,” said Miller of Intuit. “We try to take the tax out of taxes.”
The software also gives the option of printing out the return and mailing it to the IRS or sending it electronically, which will usually cost $17 to $20 extra for desktop software users.
Last year, the 80 million taxpayers who filed their returns electronically saw a big upside: Electronic returns have fewer mistakes (a 1 percent error rate compared to a 20 percent error rate for those sent via postal mail). Those e-file taxpayers typically received their refunds within 10 days of filing, compared to four to six weeks for mailed returns that do not specify direct deposit.
Even if you’re a computer genius, you may be well-off and require a an accountant to handle your sprawling financial picture. Or perhaps you’re simply going through major life changes, such as having a baby or buying a business. Hiring a pro can be a good bet, since all those changes mean tax implications.
“What’s complicated to one person is not complicated to another,” said Denise Sposato, a spokeswoman at H&R Block. “It all depends on your comfort level.”
An expert can help ensure you are not overpaying and understand all the tax instructions. Of course, hiring a professional can be costly. At H&R Block, taxpayers pay an average of $167 for tax preparation, Sposato says. The majority of all taxpayers, or 62 percent, still use professional tax preparers each year.
Lower to middle-income taxpayers and senior citizens can get free tax help. Volunteer Income Tax Assistance program offers tax help to people who earn less than $40,000 a year. Certified volunteers set up in local schools, libraries and shopping malls to offer the help.
You can call 1-800-906-9887 to locate the nearest site. The AARP also offers volunteers in more than 7,000 sites to help people over age 60 with simple tax forms and few deductions. To locate the nearest AARP Tax-Aide site, call 1-888-227-7669 or visit AARP's Web site.