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Preparing Your Income Taxes

by Lee Doppelt


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April 15, the deadline for filing federal income taxes, seems to creep up on you quickly each year. It's one of the unpleasant but necessary tasks of everyone's lives and most people don't like to deal with taxes. By being proactive about filing income taxes, you can make the experience manageable. If you've already received your last pay stub from your employer and it shows your cumulative gross income and federal and state withholding, you may have all that you need to get started. Most investment-related tax information should be in your hands by mid-February or sooner.

Preparing income taxes doesn't have to become a stressor in your life.

A great way to tackle income taxes is to do them as soon as you have all the necessary documents, especially if you anticipate receiving a tax refund. And if you owe money, you can still wait until April 15 to pay it. If you procrastinate preparing your taxes until the April deadline, you'll have wasted nearly 30% of the year worrying needlessly? How foolish is that!

If you expect a refund, especially a large one, don't fool yourself into feeling admiration for the generosity of the United States Treasury Department. That money belongs to you. You would be wise to claim a larger number on your W-4 form for the current tax year, so that your paychecks are larger and your refund is smaller. Talk to the Human Resource person at work, and fill out a new form.

So, what's the easiest and cheapest way to prepare your taxes this year? Assess your satisfaction with the tax prep experience of the previous year. If that worked well for you, then there's probably no reason to make a change, particularly if nothing changed in your life that would have major tax consequences, such as marriage or retirement. State tax forms are typically simpler than federal, so make your decision based on your comfort level and confidence to file your federal taxes.

The tax preparation process will cost you very little if you feel like you know what you're doing.

The cheapest way to get taxes done is to do them yourself. If you only have one W-2 form, your IRS form 1040, 1040A, or 1040EZ might be simple. Use last year's form as a guideline for completing this year's taxes. Also free help is available to you in a couple of ways. Call or go to the Internal Revenue Service office and ask your questions to the IRS staff. Or utilize AARP for help if you are a senior.

There are numerous software and web-based tax programs for your home computer that have excellent reputations, such as Turbo Tax, Tax Cut, and Tax Act. Turbo Tax has several different products, ranging in price from about $30 to $85. Select the correct product based on the complexity of your tax situation. If you are self-employed, you'll need to use their Home and Business version, which is the most expensive. Turbo Tax can also be accessed online at a discount, $20 to $60, through brokerages such as Fidelity or through your bank or possibly your insurance agent. Tax Cut is the online program from H & R Block.

If you want the assistance of a tax professional, there are several options.

Discount tax services such Jackson Hewitt (located in many Walmart Stores) and H & R Block are a good choice for tax preparation if you'd like some tax help from a real person. Prices start at approximately $100 for a simple return and tend to be more expensive in the larger cities. Be very careful not to agree to a loan that it is related to your tax refund. The interest rate will likely be ridiculously high.

Professional tax preparers can be found online or in the phone book. It's probably best to select someone who comes with a personal recommendation from someone you know. One woman discovered from a friend that his insurance agent does tax prep, federal and state including e-filing, even for non-clients, for a mere $60. Not a bad deal!

If your tax situation is more complicated, perhaps because of a substantial inheritance or maybe you started a business which has equipment that depreciates, it may be worth spending the extra money to hire a certified public accountant (CPA). These are experts who understand taxes and the law. Depending upon the complexity of your tax situation, plan to spend at least $300 or more.

When it comes to having your taxes prepared, as with other purchases of services, you often get what you pay for. Assess your situation now. Organize and gather all your tax-related documents now. Make a solid plan now as to who will prepare your taxes.

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