Taxes

March is coming to a close and it’s almost April, you know what that means…..it’s time to do your taxes.  I know that many people wrestle with the choice of doing their own taxes, going to a tax service, or hiring a local professional. I have found that most people’s taxes fit into three categories:  very simple, fairly simple and not simple.  Once you find out which category you fit into, your decision about finishing your taxes should be an easy one.

Very Simple: Most people have tax returns that are very simple—no itemized tax deductions, they make less than the current cut-offs of $1,500 a year in interest income, and $100,000 in total income—these can quickly and easily be completed yourself. You can go online to www.irs.gov and fill in and file form 1040EZ or 1040A and then file a simple version of the appropriate state return. Another option if your income is at or below $58,000, is to file federal taxes online for free using the software programs of companies participating in the Free File Service established by the IRS.

Fairly Simple: Some people don’t fit in the “very simple” group but still have a fairly straightforward financial picture and can still complete their tax return on their own. Consider using one of the major tax return systems such as TurboTax that includes both federal and state forms.  It is a good idea, however to have a tax professional check your return the first time you do this and again every three to four years. The likelihood is that the tax preparer will catch things that will more than pay the fee.

Not Simple: For the self-employed with employees or individuals who have a complicated financial picture, the best choice is hiring a professional. There are several available options: a national tax return franchise, an online service, or an individual local tax professional such as a CPA or an Enrolled Agent (tested and background checked by the IRS). I advise going with an individual local tax professional for the following reasons:

• The difference in fees is likely to be fairly small.
• The national chain agents are usually part-timers and likely not as well trained and knowledgeable as the average CPA or enrolled agent.
• Franchise and online preparers are less likely to be available for any questions that might arise during the year.
• The turnover of franchise and online preparers is quite high; thereby reducing the chances you will have someone familiar with your tax situation on an ongoing basis.

Never hire anyone who bases a fee on a percentage of the refund amount, who claims the ability to obtain larger refunds than other preparers, or who requests signatures on blank tax forms to be filled in later. These are red flags that this is a preparer that should not be used.

Regardless of who prepares your return, you are the one responsible for paying the taxes.  If someone improperly does a lowball return you will not only end up having to pay the correct taxes later on, you’ll also end up paying a penalty. It pays to do the research and do it right. Everyone has to pay taxes, pick your category and get it done; it will be *April 15^th before you know it.

*In observance of the DC holiday, Emancipation Day, Tax Day will be moved forward one business day this year, landing it on Monday, April 18. That’s the date your form has to be either submitted electronically or postmarked by for your tax return to be considered timely filed by the IRS.