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Determining the Best Way to Do Your Taxes

Income Taxes, Personal Taxes, Taxes
Determining the Best Way to Do Taxes
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There may be a million ways to skin a cat, but there are only three ways to prepare your tax return:

  1. Bust out the calculator and fill out the paper forms yourself.
  2. Buy tax software that does the math and fills out the forms for you.
  3. 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?

  • Not complicated: If income from your employer is pretty much the extent of your financial world, you take the standard deduction and haven’t had any big life changes, you might be able to use the super-short Form 1040EZ. You may not need tax software.
  • Sort of complicated: Many people have to fill out Form 1040A or Form 1040, plus supplemental forms. In that case, tax software is usually a better route because it can help handle the workload.
  • Complicated: Those that involve businesses, extensive itemizing or big life changes such as a divorce, for example — may require human guidance. Some high-end versions of tax software offer good, human tax-pro help on demand, but it can be a very good idea to hire an in-person tax pro instead.
  • If you’re worried about a tax audit, understand 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).

2. How much time do I have?

  • In general: Block out a solid day or two on your calendar. On average, taxpayers spend 13 hours filling out federal tax forms (tack on more time for the state filing), according to the IRS.
  • 1040EZ or 1040A filers: Maybe just five to eight hours, the IRS says.
  • If you’re filing the Form 1040: The average is 15 hours. Add a business, and  you’re looking at an average of 22 hours.

3. How much do I want to spend?

  • By hand: Preparing a paper return by hand is basically free (except for postage and, of course, your time).
  • Basic software: Expect to spend $20 to $50, plus extra for state return preparation and e-filing (if you’re using a desktop version of software).
  • Advanced software: If you’re itemizing, file in more than one state or have a more-than-basic tax life, you’ll probably need to upgrade to a more sophisticated version. That can run $50 to $100 or more, and prices tend to rise in mid-March as the April tax filing deadline nears.
  • Free options: Many software providers offer free online tax preparation options, but they usually work only with the shorter, simpler 1040EZ or 1040A forms.
  • Another free option: The IRS’s Free File program will match you with free, name-brand software if you have less than $66,000 in adjusted gross income for the 2017 tax year.
  • Human preparers: Hiring a tax professional runs $273 for an itemized Form 1040 with Schedule A and a state tax return on average, according to the National Society of Accountants. If you’re not itemizing, getting a pro to do your taxes still runs $176 on average.

4. How involved do I want to be?

  • Control freaks, tax code nerds and people with simple tax returns are the only people like the thought of doing the calculations and filling out 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.
  • For 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.

Best ways to prepare taxes: 4 key factors

 By handSoftwareHire a human
Complexity of your tax situationLow
AnyAny
Time required1-7 days+1-2 daysVery
little
CostFree$0-$50
(basic)
$50-$100+
(advanced)
About
$175-$275
Personal effortHighMediumLow
Learn moreLearn about e-filing.Review top software providers.Learn about hiring a tax pro.

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