Editor’s note: Quorum is not affiliated with any of the companies mentioned in this article and derives no benefit from these businesses for placement in this article.
As soon as your W-2 or a 1099 shows up in your inbox or mailbox, you know it’s tax time, which brings up the inevitable questions:
- How much do I owe?
- Will I get a tax refund?
- What’s the best way to do my taxes?
Let’s focus on that last question, as you can’t answer the first two until your 2020 taxes are done.
If you’re a recent college grad, this might be the first time you’re handling your taxes without parental help. Even if you’re a veteran of tax season, you could be wondering if there’s an easier or better way to do things this year. Taxpayers have three good options that don’t involve manually filling out tax forms:
- Do your taxes yourself through IRS Free File.
- Use tax software to prepare and file your taxes.
- Hire a tax professional to do it for you.
No matter which option you choose, there’s some legwork to do first. You need to gather up all the paperwork needed to complete your return, such as:
- Employer-generated W-2s
- Miscellaneous income 1099s
- Any other 1099 and 1098 forms
- Receipts for charitable donations
- Records of medical or childcare expenses
- Information about state, local or quarterly estimated taxes paid
Using IRS Free File
This DIY option is offered free of charge for taxpayers earning up to a certain amount of adjusted gross income. For the 2021 tax season, the IRS limit is $72,000 or less in 2020 income, making this filing option available to many taxpayers.
The IRS Free File webpage provides a list of approved tax preparers for you to choose from, which typically includes many of the major tax software providers. As part of this program, they offer the federal income tax return free of charge and some include a free state return.
Once you choose a provider, you prepare your tax return using the step-by-step instructions it provides. The software completes all the calculations for you and allows you to file your return electronically. If you’re due a refund, you can check its status on the IRS Where’s My Refund portal.
Choosing Tax Software
Your next option is to go directly to a tax software provider. Most of the major ones offer their software for computer download via CD or the internet, as well as an online service that you can use on any device. This includes:
- H&R Block: Tax Software and Online Service
- TaxAct: TaxAct Download and TaxAct Online
- TurboTax: TurboTax CD/Download and TurboTax Online
Others like TaxSlayer offer only an online service for individual taxpayers.
Choosing online versus desktop tax software comes down to personal preferences for things like how you want to use it (on multiple devices or only on your computer) and where you want to store the data (in a secure cloud environment or password protected on your own computer).
Tax software providers offer a range of packages at various price points for different tax situations. This includes free tax prep and filing for the simplest circumstances, such as a single filer working one job, renting and owning nothing more than a 401(k). As you go up the pay scale of packages, more tax situations are covered, including self-employment and business ownership.
Today, almost all tax software uses an easy Q-and-A format that walks you through your return, calculating your tax liability or refund as it goes. Most also let you choose between e-filing or mailing your return and provide a Where’s My Refund tool.
In addition, TurboTax and several others allow you to start your taxes for free using the online version of their software, and you pay only when you’re ready to file. This lets you work through your taxes on your own and decide before you file if you need the individualized help of a tax professional. It’s also a great way to get comfortable with doing your taxes yourself if you’ve always hired someone to do it. The software explains things as you go, and you can compare the results against last year’s return if your financial situation hasn’t changed.
The functionality, support level, accuracy guarantee and audit help all vary by provider and package. So, explore all your options and read some tax prep software reviews to decide which one makes sense for you.
Hiring a Tax Professional
Even with guided tax software, the DIY process still takes time. If that’s the one thing you don’t have to spare, it might make sense to pay someone to do it for you, even though it might cost you more. After you provide your paperwork and answer any questions, they prepare your return and deliver it to you to sign and decide whether to e-file or mail it. They’re also able to handle any IRS questions or audits.
Other reasons to offload the work to someone who specializes in taxes are if you need specific tax advice or your situation is particularly complicated. Perhaps you’re a business owner or you bought or sold a home, stocks or even a business this year.
Finally, if you’re worried about being audited or your ability to use tax software, you can calm your fears by going with a pro who is authorized by the IRS to prepare federal tax returns.
Once your 2020 return is complete, take a few minutes to see whether you can reduce next year’s tax bill.