As tax season approaches, there’s a good chance you may already have some ideas for how you’re going to spend (or save!) the money. However, the process of preparing and filing your taxes is rarely fun, and the fear of making a mistake is very real.
Hiring a trained tax preparer or accountant to prepare and file your tax return could be a good idea, but it will also cost you money. You might spend hundreds of dollars, or more, depending on your situation.
Perhaps you’ve considered saving your money by preparing and filing your return on your own. The DIY-route can seem scary, but you won’t truly be alone. Many “DIYers” download or use online tax preparation software to prepare and file their returns.
The software might give you guidance and make helpful suggestions, some programs basically hold your hand throughout the process.
If you think this might be the year to do it yourself, here’s what you need to know.
Most taxpayers are eligible for free tax software through the FreeFile Alliance (https://freefilealliance.org/), a partnership between the IRS and tax software companies. There are big-name options, and some even include free federal and state e-filing.
Check to see if you qualify before using paid versions of the same software because you might not be able to transfer your information between versions once you start.
If you don’t qualify, purchasing tax-prep online or software early in the year could help you save money as the price often increases as the tax-filing deadline approaches.
Also, look at the total cost as you compare options. Often, the software includes at least one federal tax return e-file, but there could be an additional fee to e-file multiple federal returns or state tax returns.
You could print out all the tax forms, do the calculations by hand, and mail in your return. Or, you could let tax software do the heavy lifting and then e-file your return. That sounds better to us. Some companies even offer apps that let you do your taxes with a smartphone or tablet.
While the calculations should be the same regardless of which software you use, there could be a meaningful difference between the options.
Some of the most well-known software uses a Q&A format, asking you questions about your income and life events to assess your tax situation. The back-and-forth can help ensure you don’t miss a tax credit or deduction that could save you money.
Other software gives you access to all the tax forms and does the calculations, but it’s up to you to figure out which forms you need to fill out and submit. Unless you’re familiar with tax preparation, choosing software that uses a Q&A-style approach might be a good idea.
Aside from the assistance during preparation, research the other potential benefits. For example, some software can connect with payroll providers, banks, and brokerages to automatically import information and fill out your forms, which could save you time and help you avoid typos.
Once you’ve chosen your software, it’s time to make sure all your documents are in order. You may have received tax forms in the mail or have access to them online. Double-check all the forms to make sure there aren’t any mistakes, such as a misspelled name or incorrect Social Security number.
You should receive common tax forms by January 31 including:
However, you may want to wait to file your tax return. The deadline for other forms isn’t until later, such as February 15 for Form 1099-Bs from brokerage accounts or even March 15 for Schedule K-1s that are sent to partners of a company.
Also, think back through the year to all your sources of income. If you tried out a side gig through a company, you might want to check your profile to see if any tax documents are available online.
In some cases, you might not receive any tax documents. For example, if you earned less than $600 from a contract job, the company might not send you a 1099-MISC with your income for the year.
You should still look through your personal records and add up your income and expenses and report them on your tax return (you may also want to read more about business expenses on the IRS’s website).
The actual tax preparation process might not be too difficult if you have all your documents in order.
If the software has a Q&A approach, you’ll answer questions and then be prompted to fill in relevant information about your household and finances. In many cases, you’re simply copying information from the forms into the tax software. Make sure to copy all the information exactly as it appears on the forms, although you can round numbers to the nearest dollar.
With other types of software, you may have to work your way through each section and know which forms you should fill out and which you can skip.
In either case, read all the instructions and prompts closely, as some may tell you when you should fill out an additional form or check certain boxes before continuing on to the next step.
Once you’ve completed your tax return, you can e-file it using the software. Generally, you can add your bank account information to have your refund directly deposited or payment withdrawn from your account.
If you’d rather hire a tax preparer, there are still ways to save money on the preparation and filing fees. Here are a few to consider:
Louis DeNicola is a freelance personal finance writer and credit enthusiast. You can find him on Twitter @is_lou.
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