There may be a million ways to skin a cat, but there are only three ways to prepare your tax return:
- Bust out the calculator and fill out the paper forms yourself.
- Buy tax software that does the math and fills out the forms for you.
- Hire a tax professional to do the heavy lifting.
If you’re wondering about the best way to do your taxes, ask yourself four questions.
1. How complicated is my tax situation?
The answer to this question has virtually nothing to do with how much money you make, but has everything to do with how you made that money and what else is going on in your life.
If, for example, income from your employer is pretty much the extent of your financial world, and if you want to take the standard deduction and haven’t had any big life changes, you might be one of the lucky 15% or so of taxpayers who can fill out the super-short Form 1040EZ — by hand, even.
But many people have lives that require filing the longer Form 1040A or Form 1040, as well as a bunch of supplemental forms. It could be homeownership, school enrollment, investments or a less-than-simple family situation, for example. In that case, tax software is usually a better route because it can help you handle the workload without sucking you into a vortex of tax-code research. Most programs use an interview-style approach to automate the calculations, and the upgraded versions usually can accommodate a variety of tax situations (see our comparisons for online tax software).
Of course, really complex returns — those that involve businesses, extensive itemizing or big life changes such as a divorce, for example — can sometimes fall outside the scope of the software or require strategic guidance that goes beyond simple mechanical help. In those cases, it can be a very good idea to hire a tax pro instead.
If you’re worried about a tax audit, you can still go with software or a human tax preparer — just be sure you know what kind of audit protection your software gives you and what kind of tax preparer you’re hiring (some can’t represent you before the IRS in an audit). Those things can make a big difference.
2. How much time do I have?
If you want to prepare and file your own taxes, block out at least a solid day or two on your calendar.
That’s because on average, taxpayers spend 13 hours just filling out their federal tax forms (tack on more time for the state filing), according to the IRS. If your tax situation is simple enough to warrant a 1040EZ or even a 1040A, you might be able to get away with giving up only five to eight hours for tax preparation, the IRS says. But if you’ve got a full Form 1040 to complete, that shoots up to 15 hours — about two full workdays. Add in a business, and now you’re looking at an average of 22 hours to get it done.
Tax software can speed things up considerably by determining which forms you need to fill out and tracking what you need to work on. But you’ll still need to take the time to step through each entry, key in all your data and know what you’re doing.
The bottom line: Think about outsourcing your return to a tax pro if you can’t dedicate at least a few days of your own time to preparing your tax return.
Best ways to prepare taxes: 4 key factors
|File yourself (paper or e-filing)||Use software||Hire a tax professional|
|Complexity of your tax situation||Low||Any||Any (but especially if high)|
|Time required||1-2 days to 1+week||1-2 days||Very little|
|Cost||Free||$0-$50 (simple situations), |
$50-$100+ (complex situations)
|$175 (not itemized)
|Learn more||Learn about e-filing here.||Learn about free software here.|
Review the top software providers here.
|Learn more about hiring a tax pro here.|
3. How much do I want to spend?
Preparing your own return manually is basically free, except for the cost of postage to mail the paper forms (and, of course, your time).
If you go the software route, expect to spend around $20 to $50 for a basic version, plus extra for state return preparation and electronic filing (if you’re using a desktop version of software). But if you’re itemizing, need to file in more than one state or have anything resembling a more-than-basic tax life, you’ll probably need to upgrade to one of the more sophisticated versions. Those can run from $50 to $100 or more, and prices tend to rise after March 15 as the April tax filing deadline nears.
Of course, many big software providers do offer free online tax preparation options, but they usually work only with the shorter, simpler 1040EZ or 1040A forms. The IRS also offers a Free File program that matches taxpayers with free software — if they earn less than a certain amount (the threshold was $64,000 in adjusted gross income for the 2016 tax year).
Hire a tax professional and you’ll probably shell out about $275 in tax preparation fees for an itemized Form 1040 with Schedule A and a state tax return, according to the National Society of Accountants. If you’re not itemizing, getting a pro to do your taxes will still run about $175.
4. How involved do I want to be?
Control freaks, those fascinated with tax code and people with simple tax returns are likely the only ones on the planet who smile at the thought of doing the calculations and filling out the forms by hand.
For those who don’t need to see exactly how the sausage is made but definitely want to be in the factory, software is usually the way to go — most big providers are very good about showing the calculations behind the numbers and explaining the reasoning.
But for the true just-make-it-go-away types who’d rather get a root canal without anesthesia than prepare a tax return, hiring a tax pro is huge. Remember one thing, however: In the eyes of the IRS, the accuracy of your tax return is ultimately your responsibility. You can outsource the work, but you can’t outsource the liability — no matter which method you choose.
Tina Orem is a staff writer at NerdWallet, a personal finance website. Email: firstname.lastname@example.org.
Updated Jan. 27, 2017.