No matter which way you turn, there is no ignoring it: It’s tax time! With the month of January comes a wave of W2s, 1099s, and endless paperwork that is sure to make your head spin. While the pending task of tax preparation may seem daunting, make this year different and commit to making smart and cost effective tax preparation decisions. Some tips:
IGNORE THE MARKETING MANIA: The commercials seem convincing and the company mascot at the busy intersection may have great dance moves, but that alone is not a good enough reason to select a tax preparer. One of the reasons I caution people against the seasonal tax preparation services is because they often target low income households that generally have simple tax returns.
Unfortunately, many people ignore the cost to prepare the return because of the allure of the pending tax refund. Two cost effective resources for individuals who make less than $52,000 per year or the elderly are the IRS VITA (Volunteer Income Tax Assistance) and Tax Counseling for the Elderly (TCE) programs.
With these programs, IRS-certified volunteers prepare tax returns free of charge for taxpayers. The volunteers range from college accounting students to CPAs who are willing to give of their time for a few hours throughout tax season. Visit www.irs.treasury.gov/freetaxprep for more information or to locate site.
TAKE ADVANTAGE OF THE FREEBIES: Many Americans skip professional help and opt to prepare their own tax return each year. If you feel comfortable doing so, then perhaps you should consider some software options that are free to many taxpayers. By simply visiting the IRS website and answering a few questions, you may be able to prepare and e-file (file electronically) your federal tax return at no cost. And, just like any other off-the-shelf tax preparation software, your information often pre-loads from one year to the next in order to ease the burden of data entry in future years. Of course, if you are loyal to another software program, then there is no point in reinventing the wheel. “Free File” through irs.gov merely provides an option for those who want to file electronically but do not have an existing allegiance to a particular tax software vendor.
PAY FOR PROFESSIONALS: Everyone does not have a complicated tax situation that warrants the expertise of a certified public accountant. Nevertheless, for what you will likely pay to have your taxes prepared by one of the seasonal companies, you may as well pay a professional as opposed to a tax preparer. Some common signals to let you know it is time to seek professional help include selling stock, owning rental property and starting a business. Also, if you constantly second guess yourself as to whether an expense is tax deductible or if you are pushing the envelope, then it may be time to talk to someone who is knowledgeable about these tax situations. When seeking professional help, both CPAs and enrolled agents (EAs) should provide a viable option for the task.
Regardless of which option you select, always remember that your tax return is your responsibility. Therefore, it is imperative that the person you pay to prepare them doesn’t just know more than you. They actually need to know what they’re doing.
Life is a journey. Plan for it.