Self-Preparing Tax Returns, Online Tax Preparation Software, and E-Filing

Written by Wendy Stultz   // June 13, 2011   // 0 Comments

Tax Prep

The IRS has moved squarely into the late 20th century folks. They may not ever use email (keep that fact in mind whenever you get an email supposedly from the IRS regarding a refund or balance owed) and still require some tax returns to be paper filed, but as of 2011 the IRS is generally requiring tax professionals to e-file tax returns.

Please think carefully about the complexity of your tax return and what documentation you may have or may have to provide to the IRS before deciding whether you will prepare your own taxes or hire someone to assist you. I always do my own taxes, but then, I am a tax attorney. I have seen so many folks who did their own taxes, but did them wrong, forgot to include all income, didn’t use the correct lines on the tax return for credits, or other issues. Some of these folks ended up having their tax refunds held while the IRS double checked their returns, some owed money, and some were audited by the IRS. Not a fun experience.

My advice would probably be to turn your taxes over to a tax preparation professional:

1) if you don’t feel sure that you can do it right and timely yourself

2) if you had a significant change in the tax year (got married, got divorced, moved out of state, started college, started a new job, had a child, bought a house, started a business, retired, had a spouse pass away, etc)

3) if you have recently been audited on past years and were found to owe more

4) if you operate a business that has employees

5) if you do day trading, own rental properties or receive royalties

6) if you cashed out a 401K, 403B, IRA, or the like

7) if you receive income through or from a partnership, S corporation, trust, etc.

8) or if you just don’t think you want to do your taxes yourself

But if you have decided to slog through and give it a shot yourself (remember that if you get to a point where you have too many questions- you can always hire someone to help you), gather your tax documents and plan on putting at least a few hours in to preparing your return. You can do this in more than one sitting, if necessary.

If your total household income falls under a certain threshold, currently $58,000, you can use branded software for free to prepare and file your tax return. The catch: you have to access this free software through the IRS website. This is the same software/web-program folks can buy access to if they make over that threshold. Even though the federal IRS e-filing and preparation may be free through this software, not all state filings are free. Some states have their own free filing programs, so you may want to do a little more local research before paying to electronically file your state return. Again, you mileage may vary, as all the states have their own rules and tax filing requirements.

If you know what your tax return should look like and don’t need to go through the questionnaire format of most software, you can use the IRS fillable forms, here. Not the greatest if you have much going on in your return, but an easy and free option either for folks who know exactly how to prepare their simpler tax returns, or for those folks who may need to file an extension. I also love the fillable forms as a basic primer for folks who are self-employed and need to know what documents to keep and bring with them for their Schedule. As an aside, I strongly suggest that if you are self-employed, you use a Schedule C form as kind of a running Profit and Loss statement throughout the year to make sure you are documenting all business expenses and to have an idea of where you will end of for the year in self-employment taxes.

The other option is to buy software to load on your computer or to buy access to web-based program. There are several out there and they range in price (some offer free, but end up charging if you don’t meet criteria or if you want to e-file after preparing) and quality. I use professional software for myself, just like I do for my tax preparation clients. That isn’t to knock these options, just to explain why I can’t give you a full product review. Since most of these programs are based on the professional tax preparation software the company sells to tax preparers, they all offer customer support, reflect to some degree the style of the professional preparation software they are based upon, have their own devout followers, and their own style. Find the one that you feel most comfortable with. Many of these programs will send you email reminders, allow you to import last year’s basic data, or store your return with them for a period of time, so you may find yourself sticking with whichever one you start. CCH owns Turbo Tax, which is probably among the most common of the at-home tax preparation programs, offering both a software installation and web-based program. CCH also owns Complete Tax, which seems to be very similar in form and function to Turbo Tax- down to having the same “About Us” page. Tax Act also has both a software installation and web-based program option. I like the ease of use and variety of options for how to proceed through the tax return preparation process with Tax Act. Disclaimer- Tax Act is the only one of the listed programs I have used personally. E smart is the Liberty Tax Services web-based program. H & R Block has TaxCut both online and software installation. Jackson Hewitt, currently undergoing Chapter 11 bankruptcy restructuring, doesn’t appear to have a separate name for their online filing program.

And technically, you can also prepare your tax return, then take it to a professional e-file provider and have them electronically file your return for you. I guess this would speed up your refund over a paper-filed return. Other than that, this just seems to be one of the many quirks in the IRS system.

Regardless of which option you choose, when you file your tax return you are signing under penalty of perjury that the tax return is true, complete, and correct, to the best of your knowledge and beliefs. Basically, this means that if you have a question about the software- ask it before you file. Even if the software goofs up your return somehow, you are accepting it by signing the return (even electronically signing through e-filing). That means you can still owe the IRS for the goof. Not knowing what you are doing in preparing your own tax return is, naturally, not a valid excuse as far as the IRS is concerned. FAQs and forums are great places to start. Customer service is another option. Or consider hiring someone just to review your return if you think you really have an issue. Make sure whatever software you do use has the support you feel necessary in case you need it.

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