When filing your taxes, it’s tempting to think that if you file yourself, you’ll save a few bucks. But the truth is that this isn’t always true and can actually cost more in some instances. Here are three things to consider before doing-your-own taxes.,

If you have to file your own taxes, it is possible that you might save money. However, filing your taxes can be very time-consuming and there are a lot of costs involved. Read more in detail here: how much does it cost to hire someone to do your taxes.

American taxpayers start their yearly search for receipts, W2 forms, and 1099 forms as soon as the New Year’s festivities come to an end in preparation for the April 15 income tax filing deadline. For some taxpayers, submitting a 1040-EZ and receiving a little return may be all that is required, but for others, tax season may be stressful and perplexing.

Tax season forces a major choice on millions of Americans: Should you hire a tax preparer or can you do it yourself using tax-preparation software like TurboTax or the IRS Free File Program?

A CPA will probably make your life simpler if you run a company, pay staff, participate in the stock market, or own many properties. On the other hand, tax software could be enough for your requirements if you’re a full-time worker who earns a respectable income, gets a W-2 each year, and has no assets outside of your tax-sheltered 401(k) or 403(b) retirement plan. The reality of most taxpayers’ finances falls in between the simplified finances of a wage worker and the complexity of having many sources of income and assets.

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Costs of Tax Preparation


TurboTax advertised its software packages at costs between $60 and $120 at the beginning of 2021; these prices do not include a separate fee for filing state taxes or any add-ons. The National Society of Accountants reports that in 2020, the average fee for preparing an itemized 1040 and a state return was $323.

H&R Block’s annual report provides some insight into the economics of tax preparation. In 2019, H&R Block handled nearly 24 million tax returns. The company charged customers an average of $32.59 for its DIY tax-prep software. Taxpayers who had H&R Block prepare their returns paid an average of $233 at company-owned offices and $217 at franchised locations.

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At a Glance: Tax Software and Professional Tax Preparation


While some taxpayers with complex financial circumstances are quite adept of doing their own taxes, others with straightforward finances nevertheless choose hiring an accountant. There is no right or wrong answer, but you may choose the choice that is best for you by taking certain factors into account.

When choosing between tax software and an accountant, take into consideration the following.

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1. Did a Life Event Happen This Year?


There might be a variety of tax repercussions when life occurs. A once-simple tax situation might become complicated by a divorce or a serious health issue. Financial gains and losses may also significantly alter your view on taxes. If you received an inheritance from the trust of a deceased family member, you could not get the necessary Form K-1 until far after the April 15 deadline, necessitating the need to request an extension.

You can get an IRS Form 1099 if you had your mortgage forgiven via a short sale or if you had your student loans paid off after negotiating a hardship discount. Since the IRS views the forgiven amount as income, you’ll often need to pay taxes on it. If you have an Individual Retirement Account and are older than 70, you must begin arranging for yearly required minimum distributions.

Even if a life event doesn’t always need you to run to your CPA’s office, it might increase the complexity of tax preparation and the likelihood that you’ll want to engage a professional.

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2. Do You Work for Yourself?


The Bureau of Labor Statistics (BLS) estimates that 9.6 million Americans worked for themselves in 2016; by 2026, that figure is expected to rise to 10.3 million. More and more individuals are driving for Uber and Lyft, staying in accommodations via Airbnb, and having food delivered through Uber Eats and GrubHub as the sharing economy booms. Instead of receiving a W-2, self-employed individuals must disclose their income on a Form 1099, and independent contractors are accountable for making quarterly anticipated tax payments.

A self-employed person confronts a bewildering assortment of tax deduction opportunities and problems, but a full-time employee has almost little leeway when it comes to deducting work-related costs. Which is preferable: claiming the usual mileage deduction for business trips or depreciating your company vehicle? Should you deduct the cost of your home office? How about adopting a SEP-IRA or similar tax-advantaged retirement plan for independent contractors?

Although TurboTax offers a version of its software geared toward business owners, April Walker, lead manager of taxation at the Association of International Certified Public Accountants, claims that for many taxpayers, being self-employed is the single most compelling reason to hire a tax professional. A CPA can ensure that you’ve done the accounting correctly, according to Walker.

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3. Do You Depend On Others?


Although they provide a tax advantage, children might make your taxes more difficult. You may, up to a certain amount, deduct the expenditures of approved child care during their early years. The math becomes more challenging for parents of children who will attend college. A 529 plan enables parents to grow money put aside for tuition and other costs tax-free in the years before college.

When Junior starts college, you may be eligible to utilize the education and fees deduction or the Lifetime Learning tax credit to reduce your tax liability. Even a DIY tax preparation application can guide you through making sure you receive money back for eligible school costs. A tax expert can answer concerns about receiving education-related tax deductions and credits.

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4. Did You Sell Stocks or Make Market Transactions?


The majority of stock and bond assets of taxpayers are held in tax-advantaged funds like 401(k) plans, 403(b) plans, or Individual Retirement Accounts. Up until you reach your 70s and have to start pulling the money out, the IRS permits the money to grow tax-free with compound interest in these accounts. However, things grow more complicated if you have assets in taxable accounts.

You should collect any tax documents that your brokerage sends to the IRS each winter since dividends are taxable. You must identify your cost basis, or the price you paid for the shares prior to any splits, and whether the long-term or short-term capital gains rate is applicable before you may sell an investment. Losses from removing losers from your portfolio may be compensated by gains from other investments.

If you have gold investments, be aware that securities linked to gold might lead to some complex tax problems. According to April Walker of the AICPA, the same is true for complex trading tactics like options as well as for Bitcoin and other cryptocurrencies. In other words, the busier your brokerage account is, the more probable it is that you’ll need advice from a specialist.

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5. Are Itemized Deductions Required?


The standard deduction roughly quadrupled when President Donald Trump signed the Tax Cut and Jobs Act in late 2017. The standard deduction for single taxpayers increased from $6,350 in 2017 to $12,000 in 2018. Married couples filing jointly now have a $24,000 cap instead of the previous $12,700 cap.

Most taxpayers will no longer be able to itemize their deductions for charitable donations or mortgage interest as a result of the hike. Few homeowners pay enough interest to qualify for the mortgage interest deduction since mortgage rates are still close to record lows. Additionally, there is no longer a tax benefit for contributing a few hundred dollars year to the United Way or your alma school. The itemized deduction is no longer a justification for the average person to seek tax advice.

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6. Is a state income tax required in your state?


There is no state income tax in Florida, Nevada, Tennessee, or Texas, hence there is no need to file an annual tax return in those states. Others, such California, Illinois, and New York, levied an income tax on citizens, necessitating the submission of a different return. Although state tax filings are far less complex than federal forms, they nonetheless add another level of complication to the process. State tax preparation software from TurboTax has an extra cost.

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7. Do You Earn Less Than $72,000?


Some 100 million American taxpayers are eligible to file their taxes for free, according to the Free File Alliance. However, only a fraction of eligible taxpayers takes advantage of IRS Free File, perhaps because the program is marketed far less aggressively than paid tax preparation. H&R Block and its competitors advertise heavily during tax season.

Anyone who makes less than $72,000 can use IRS Free File. As with everything about income taxes, however, some taxpayers might find the program to be complicated. In order to offer free tax filing, the IRS relies on the Free File Alliance, a consortium of private providers, including TurboTax and H&R Block, and income requirements vary by provider.

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choose tax software


Taxpayers can choose from a variety of software packages. TaxSlayer, Jackson Hewitt, Credit Karma and, of course, H&R Block and TurboTax, all market to consumers. With competition stiff, most software providers have priced their basic packages at $30 to $40. Aside from the base price, factors to consider include whether the software is online or a download, whether state returns are included, and whether electronic filing is part of the base price.

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Why Consult a Tax Expert?


An expert tax preparer may find deductions you’re unaware of, save you from making expensive errors, and assist you in developing a long-term tax strategy.

The most crucial benefit, according to April Walker of the AICPA, is that a professional can soothe your mind by taking care of all the minutiae involved in correctly completing your taxes.

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Finding a Tax Accountant


Ask your friends, relatives, and colleagues for recommendations if you’re searching for a tax preparer. Many tax preparers possess certifications as certified public accountants, which calls for holders to pass challenging exams and regularly scheduled continuing education programs.

Enrolled agents are a different kind of tax preparer. The IRS has examined the experts in this category. In either situation, you should see the practitioner to ensure that you get along well with one another and to confirm that the tax expert’s background meets your requirements.

Source of the image: DepositPhotos.com.

The Best Way to File Your Taxes


Consider using IRS Free File, an often disregarded service, if your tax situation is simple and your annual income is less than $69,000. If you have the time and want to do your own taxes and your income is over the Free File income line, you can probably find tax-preparation software for less than $100.

Imagine how proud you’ll feel when you successfully file your taxes on your own as an extra reward. The $200 or more you’ll spend on that professional knowledge is well worth the price for your peace of mind if you decide that you’d prefer the comfort of employing a specialist or if you have a complicated tax situation. In any case, only you can choose the tax preparation strategy that will be most effective for your circumstances.

This article originally appeared on MoneyGeek.com and was syndicated by Mediafeed.org.

Source of the image: DepositPhotos.com.

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