What you need to know in choosing the right tax preparation method for you.
1. Prepare the return yourself on paper.
If you prepare your return for paper filing, it will most likely take you a lot of time and accuracy is an issue. You will need to gather all of the right forms (free from IRS and can be downloaded from (www.irs.gov ) However, unless you are trained you may miss out on income or deduction items you need to include. If you must file a state tax return then you will have to download those forms from your state web site. nys.gov (for example)
The Good news: You will not have to pay for the preparation.
The Bad news: You will spend a lot of time even for the very simplest returns and your outcomes may not be to your best benefit.
2. Bring your collected data to IRS or to a VITA location to help you in preparing the return.
If you do this you will be filing a return in based on the law but you will have the law enforcer determining all answers to any grey areas and this may not be to your benefit. If you have the return prepared at IRS, the personnel assisting tax payers come in varying skill and care levels. Some care and are very good; others may not be very good or may be annoyed to be doing this type of work. VITA sites (www.irs.gov/individuals) have everything from students to retired professionals assisting taxpayers and you may get lucky and find a great preparer. The service is free; the waiting time can be long, especially at the IRS. You will not necessarily get help in maximizing any deductions available.
The Good news: It is free.
The Bad news: You get what you pay for. The lines may get long as the tax deadline approaches.
3. Prepare the return yourself on-line.
If you do this you will pay a fee (actually, in most cases several fees but the total will likely come in at around $100, including the state return and e-filing.) (For reviews of software check out sites like: wwwconsumerresearch.com or www.tax-compare.com.) You will save some time over the hand written method and you will get some hints during the preparation to save you some money. Your mathematical accuracy is pretty much guaranteed to be right unless you enter the numbers incorrectly, in which case IRS will likely correct your errors.
The Good news: There is no hunting for the right forms. The math will be right. The small out-of-pocket cost is attractive.
The Bad news: It is time consuming learning of the quirks of the software and can be very frustrating answering questions that do not apply in your case.
4. Use a commercial preparer to prepare your return.
H&R Block has been advertising since Christmas and they want your business. Other national companies (Jackson Hewitt & Liberty Tax, among others) are advertising now seemingly all of the time. There are also local tax preparers, who during the rest of the year sell insurance, rent videos or are cell phone dealers but for three and one half months are in the tax business. They will prepare your return with great mathematical accuracy (they use tax software) and they will, in many cases, do it with speed. They will charge you a substantial fee for the return and, in almost every case, will pressure you to buy other services (e-filing, refund anticipation loans, so called RALs, etc.) H&R Block prepares millions of returns every year and good percentage of those filers take out RALs. Before you use these preparers read up on RALs. A good starting point might be www.huffingtonpost.com and search for the article by Dory Rand dated January 10, 2011.
The Good news: The larger companies have good software and some well trained personnel. They are everywhere and, so, are convenient. The wait time in the office is usually short.
The Bad news: The preparation cost can be high. They will try to sell you RALs because that is where the biggest profit is. Some of their personnel are, in my opinion, less than well trained and most are poorly paid for basic tax preparation work.
Warning: Avoid almost all of the local tax preparers. Generally, they are not at all well trained and some will even charge based on the refunds that they get you. Later on when that refund is denied by IRS, they may be nowhere to be found.
5. Have a licensed CPA or tax attorney prepare your return.
Most people are afraid to go this route because they are afraid of the cost. Yes, it is likely that the cost will be higher than the commercial preparers but it also may not be that much higher. The advantage is that this group of preparers will be trained, licensed and, most likely, insured against potential errors. They all have both a technical and ethical training and their offices do not become retail stores once the tax season is over. The largest CPA and law firms are out of reach economically for most taxpayers but small local CPA firms and local attorneys trained in tax can do everything the commercial preparers can do and most of the time they can do it better.
The Good news: This group is generally the best trained and the most likely to stand behind their product. In almost every case, they will not try to sell you services you do not need. You usually get what you pay for.
The Bad news: The cost is the highest and may be beyond the means of some filers. The CPA firms, especially, tend to take their time and getting back your returns for filing may take weeks not just days.