How will you tackle your taxes this year? There are essentially four ways to get it done:
- File on your own using IRS forms and instructions.
- Hire an accountant.
- Use tax preparation software to file.
- Go to an in-person tax preparation service.
Answer these three questions to decide which filing option might be best for you.
- How complicated are your finances?
A.) Quite simple. I have one source of income and only a few investments.
B.) There are a few wrinkles, but nothing too complicated.
C.) I’m not sure, but I think someone should take a look at them.
D.) I’ve got a sophisticated investment portfolio, plus other complexities like part-time business income or rental property.
- How much can you spend on tax preparation?
A.) I’m on a tight budget and need a no-cost solution.
B.) I need to keep the cost well under $100.
C.) I can pay $200, if it means I’ll save on my tax bill.
D.) Budget isn’t my primary concern. Maximizing my tax savings is a top priority.
- How much time do you have?
A.) I’m not in a big hurry, but the process shouldn’t take long because my finances are simple, and my records are well-organized.
B.) I can spare a couple of hours, but working through a lot of calculations and lengthy instructions just isn’t practical for me.
C.) I’ve sorted my financial files but I just don’t have time to fill out all those forms.
D.) I’m swamped. I have a high-earning job or business, and time is money.
That’s it! Now let’s see what your answers may be telling you.
If you answered mostly . . .
A’s: The complete DIY approach may be right for you because your taxes are not complicated. It costs you nothing to access IRS tax forms and other paperwork you need to file. Remember that the simpler your finances, the simpler the tax form you can use. The 1040EZ and 1040A are easier while the 1040 is the most complex. The IRS website can help you narrow it down among these three.
B’s: For about the price of a restaurant lunch or dinner, you could purchase tax preparation software to save yourself some time and give your calculator (or No. 2 pencil) a rest. PC Magazine reviewed five brands with prices ranging from $12.99 to $34.99 for federal tax returns. Federal tax filing software can go up to about $54.99 if you need to report certain kinds of investment income, according to Kiplinger. Some vendors offer free versions of their software for those using the 1040EZ or 1040A form.
C’s: You may be a good candidate for an in-person tax preparation service. If filing a personal Form 1040, the average cost is $142, according to The Balance, but that’s still generally less than what a personal accountant would cost.
D’s: Consider hiring an accountant if your personal finances are complex and your personal time is short. This option tends to be the priciest: In 2015, the average fee for filing a 1040 with itemized deductions and a state tax return was $273, according to the most recent report of the National Society of Accountants. But if you can afford the fee, then having an accountant comb over your financial records for extra tax savings might be worth it.
Now that you know how you should file, get the jump on your taxes and get everything in early — it’s a big, satisfying item to cross off your to-do list.