There are basically three options when it comes to preparing your tax return.
- Paper and pencil
- Purchase income tax preparation software
- Hire a professional tax preparer.
The factors that should be considered when you decide which is best for you are
- The level of complexity or the return, and
- The amount that you want to spend to prepare your return
The rule of thumb is that the few tax documents that you have, the easier your tax return will be to prepare.
If all that you have is a W-2 form, the you can still do your return the old fashioned way, by filling in the forms and mailing them in. (I advise to mail in tax returns using certified mail to ensure that you are able to prove that you did send in your tax return)
If you own a home, you will receive a mortgage interest statement and an annual statement that shows how much you paid in property taxes during the year. This will start making your tax return complicated, but this is something that just about any income tax preparation software will be able to handle.
3 of the more common things that complicate a tax return are:
- Owing a business.
- Owning rental property.
- Buying and selling stocks and investments.
I advise my clients, and really everyone, to have a basic understanding of what goes into their tax return. There are ways of structuring these to make them understandable and to be easily reported on your income tax return.
For 2014 the cost of Turbotax, with any of these three things is $74.99 plus $36.99 for the State, so you can plan on spending about $112.00
I get a discount for being a paid preparer. My software company has a “light” version, the 2014 cost will be$39.99 plus $29.99 for the State, so that makes this option about $69.98
Both of these programs will electronically file your returns, which means that you will get your refunds fast. During the busy tax season, it only takes about a week and a half for taxpayers to get their refunds. Neither of these will prepare local income tax returns, so if you live or work in either Grand Rapids or Walker, you will have to prepare these returns by hand.
Every year the National Society of Accountants (NSA) surveys tax preparers to find out the average price to prepare a tax return. After the last tax season the NSA polled 11,000 of its members and found the average fee was $248.00
There are of course intrinsic advantages to having a CPA prepare your tax return. This year has seen a lot of activity in the housing market, resulting in a lot of refinancing activity. Banks and lenders normally require borrowers to sign off that their tax returns were filed by submitting a request to the IRS. So if you are refinancing, you will need to rummage through your file cabinet, find the form and your tax documents. Your CPA can do this with a phone call.
Secondly, a good CPA will help you look for deductions where the software will not. Some of the tax preparation software companies advertise that their product is guaranteed to stand up to an audit. Well if that’s the case then I wonder just how aggressive or thorough the software is in getting all of your tax deductions. What most tax preparers generally agree on is that the tax preparation software does a pretty good job of asking general questions, but a lot of times leaves the taxpayer paying more than they should.
Finally, everyone should know a doctor to make sure that their body works right, a mechanic to make sure that their car runs right and a good CPA to make sure that their finances are running right.
That extra money to have your taxes done by a CPA, could save you a lot more. Every year during the normal course of preparing tax returns, I find things that would normally go unnoticed. Mortgage payments do not get applied, property taxes are at the wrong rates, investments are valued incorrectly.
There is no one size fits all, its important to be comfortable with where you are at, and if your not sure, then if might be time to discuss your tax situation with a CPA
By Doug Zandstra CPA EA
Doug is a Certified Public Accountant that specializes in Small Business Accounting and Individual Income Tax Preparation in Grand Rapids Michigan.