Saturday May 28, 2022

Should You Use Tax Software or a Tax Preparer?

It’s tax season again — which means that many of us are asking ourselves not only when we’re going to find the time to do our taxes, but also how we’re going to get them done. Is this the year we hire a CPA? Should we stick with the same tax prep software we’ve been using? Are there any free tax prep resources we should be aware of?

We reached out to a personal finance expert and a CPA to learn more about the pros and cons of different tax prep methods — including when to do your taxes yourself and when to bring in the tax professionals. We even asked them whether it’s a good idea to do your taxes on paper, with a calculator on one side and a stack of IRS tax tables on the other. (Spoiler alert: neither of them recommended that option.)

If you’re still trying to decide how you’re going to get your tax filing done this year, here’s what you need to know.

The pen-and-paper method

Believe it or not, it’s still possible to do your taxes the old-fashioned way — with pen, paper and calculator. All you have to do is find the correct IRS forms online, print them out and follow the instructions.

READ  Rocket Mortgage Review | Haven Life

In some cases, you won’t even need to print out the forms on your own. Many local libraries stock pre-printed IRS forms, and you can also visit an IRS Taxpayer Assistance Center to get both the information and the paperwork you need.

What’s the catch? Doing your by hand is likely to be the most time-consuming way of taxing the process. IRS forms and their respective instructions and tax tables can be confusing, and it’s all too easy to misread a form or miscalculate a sum.

On the plus side, the pen-and-paper method comes with the lowest cost. If you’re trying to save as much money as possible, this tax prep method will give you the most bang for your buck — and take the most hours of your life in exchange.

“At this level, it’s about how much you value your time,” says Jim Wang, personal finance expert and founder of WalletHacks.

Tax prep software packages

Wang believes that many taxpayers will get the most value for their dollar — and their time — by working with one of the leading tax prep software programs. “Unless you have a complex tax situation, one of the tax preparation software packages is going to be good,” says Wang.

READ  3 Reasons to Consider Term Life Insurance – Life Happens

Tatiana Tsoir, a CPA and business coach who is the author of Dream Bold, Start Smart: Be Your Own Boss and Make Money Doing What You Love, agrees. “If you’re a W2 employee, just use TurboTax or TaxAct.”

Tsoir notes that the best tax prep programs make the process very easy, giving you the opportunity to control the speed at which you look up and provide the requested information. Today’s top tax programs also do the math for you — no tax tables or calculators required.

What is the best tax software program you should use? They’re all fairly similar, so take the time to compare features and prices but don’t stress too much about the decision. “If you used one in the past, it’s simplest to stick with it,” says Wang. Sticking with the same tax preparation software over time also gives the program the ability to automatically pull information from previous tax filings, instead of requiring you to look up past-year tax data on your own.

Tsoir believes that nearly all W2 employees can benefit from simple tax prep software, as can many people who combine W2 work with a small side hustle. Once your side hustle becomes a small business, it’s worth asking yourself whether it’s time to bring in a tax pro — which, in most cases, means hiring a CPA.

READ  Easy Online Tax File Storage with LifeSite

Hiring a CPA

“If your tax situation gets more complicated, and by that I mean you have a business, rental properties, or need to file in multiple states, you may want to speak with a CPA,” says Wang. A good CPA can help small business owners prepare not only for this year’s taxes, but also for next year’s estimated taxes. “In these situations, it’s not just about filing your taxes for last year but looking forward too.”

Having a savvy CPA on your team may cost you up-front, but is likely to save you a lot of money in the long run — not only by advising you on how to maximize your business tax deductions, but also by helping you avoid the kinds of tax prep errors that could lead to unexpected tax bills or IRS penalties. “The cost of getting your tax prepared by a CPA or an EA is far less than the damage that can be done if you DIY a more involved situation,” Tsoir explains.

An EA, also known as an Enrolled Agent, is an IRS-authorized tax preparer. EAs earn this designation either by working as an IRS employee or by passing a three-part IRS exam, and are some of the most well-informed tax professionals available.

READ  Cancel Your Gerber Life Insurance Policy Online Or By Phone

Unfortunately, not every tax preparer has a CPA or an EA’s level of knowledge — so before you pay anyone any money to help you with your taxes, make sure you’re working with a tax expert that can do the job. “A service like H&R Block can give you a great deal,” says Tsoir. “Keep in mind, though, that the people preparing your taxes are not licensed professionals and most often get a few weeks of training, if that. You must check your information and forms for accuracy, ask questions and be on alert.”

Accessing free tax prep resources

If you need help with tax planning but can’t afford to hire a CPA, it’s time to look into free tax prep resources. The IRS Free File service, for example, offers guided tax preparation to any individual or household (or “married couples filing jointly,” in tax parlance) with an adjusted gross income of $73,000 or less. This service allows taxpayers to access tax prep software without having to pay the associated fees, and is an excellent tax prep option that many people are not aware of.

You may also be able to work directly with a tax professional, thanks to the IRS’s Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs. Both of these services offer free tax return preparation to qualifying individuals and households. Use the IRS’s free tax prep hub to determine whether VITA and TCE services are available in your area.

READ  How Long Does it Take To Get Life Insurance Money?

“Free local services can be valuable if you meet their income limitations,” says Wang.

You may also be able to find tax help at your local library, or through other community outreach organizations. If all else fails, take to the internet — but make sure you double-check any information that you find on a Facebook page, Twitter thread or Reddit forum.

Here’s one last tax tip that you won’t have to double-check — no matter how you choose to do your taxes this year, keep track of the receipts, forms and other materials you need to complete your taxes and start setting those same materials aside for next year (perhaps using a secure online file storage solution like LifeSite). Tax season is always just around the corner, after all — and now that you have the information to decide how to file your upcoming taxes, all you have to do is get the job done.

Source link

Leave a Reply

Your email address will not be published.

Back to Top