Your game plan for filing your taxes
Filing taxes is an intensely personal process.
Not only do you have to work through your annual money matters,
you also have to be confident that what you report to the Internal
Revenue Service is right.
That's why one of the biggest problems some
taxpayers have during the whole process is finding a filing method
that fits their comfort level as well as meets their tax-reporting
Millions in recent years have turned to their
computers for filing help. Even more taxpayers rely on an accountant
or other tax professional to get the job done. And then there are
those folks who find a dozen sharpened pencils and a couple of pots
of coffee work just fine, thank you, when it comes time to figure
out what's due Uncle Sam.
Which method is best for you? It really depends
upon your tax-filing experience and which forms you'll be filing.
Consider the work involved
Dick Plotz, a self-employed pathologist in Rhode Island, has been
doing his own tax returns for about 25 years, regardless of the
number of forms and schedules necessary. A few years ago the healthy
stock market meant Plotz had "a fairly large amount to do on
That was in addition to filling out Form 1040,
for Employee Business Expenses and Form
8606 for Nondeductible IRAs. The task generally takes about
a week before Plotz is ready to mail the paperwork to the IRS.
Plotz isn't alone when it comes to using the
old-fashioned method, and the work may sound more tedious than it
really is. If your financial situation doesn't change much from
year to year, then it's basically just pulling out last year's return
and filling in the new numbers for this year. Still, you'll want
to keep up on any tax changes.
If you choose to prepare your own return, there
are some benefits:
You keep up with changes in the tax
You can make better financial decisions as a result of
your tax knowledge.
It's free! (Provided that you don't make any errors.)
If you're filing Form 1040EZ,
it should take a couple of hours to fill out by hand. An easier
option is using the TeleFile
method. It allows you to file the 1040EZ using
a touch-tone telephone. But you can only do this if you received
the TeleFile tax package in the mail and you:
Still use the address printed on your
TeleFile Tax Record;
File single or married filing jointly and have no dependents;
Had income only from wages, salaries, tips, taxable scholarship
or fellowship grants; unemployment compensation; interest (less
than $1,500 and no withholding deduction); Alaska Permanent Fund
Dividends; and qualified state tuition program earnings.
Had total taxable income of less than $50,000.
You simply call the toll-free number that's
posted in your TeleFile tax package and the program automatically figures the amount
of your refund or balance due, based on the information you enter.
TeleFile benefits include:
The phone call takes about 10 minutes.
You don't need a personal computer.
The program does all the math.
File from just about anywhere, anytime.
It's absolutely free!
Some people are just plain used to going straight to a tax pro.
Bill McCloskey, a media relations director in
Washington, D.C., has been going to his accountant for more than
25 years. "All the (tax) materials are in his files, so he
keeps track of my office depreciation." The fee is roughly
$400, but for the sake of convenience, it may well be worth the
price. "He sends me a planning document in December and I fill
in the blanks."
If you do want a personal accountant, it's best
to find one early. Don't count on taking your paperwork to an accounting
firm April 10 with the hope that they can submit your return on
time, says Mike Crombie, a certified public accountant with Gould
Eisele Crombie LLP in New York City. Most tax seasons, Crombie notes,
the firm has hundreds of "difficult returns that had been here
When a franchise operation
You may want to consider using a tax preparation franchise company
such as H&R
Block or Jackson Hewitt. That's
what Mark Gillespie, a television producer in New Jersey, did a
couple of years ago. He always filled out his own tax forms in the
past, but he bought his first house in 1999 and wasn't sure about
claiming the deduction.
"I probably could do it on my own, but
it's not worth taking the chance of making a mistake," he says.
"I'd rather let somebody who knows what they're doing take
care of it this year, then I'll try it myself in the future."
The franchise preparers are less costly than
a tax attorney or a CPA. H&R Block and Jackson
Hewitt Tax Services fees are comparable, and vary according to the
complexity of your personal tax situation, and the forms and schedules
that need to be completed.
The benefits of going straight to the pros include:
They sometimes can save you money
(despite the fee) by pointing out tax-reduction strategies.
They are helpful if you've experienced a life change (bought
or sold a house, married, retired, etc.).
They may reduce the likelihood of getting audited and can
be of assistance if your return is examined.
Letting a computer tax
program run the numbers
Finally, computer software is rapidly becoming a prime tax-filing
method. Many programs exist, with state filing as an appealing option
for those who face dual filing duties each tax year.
"The process walks you through step-by-step
so you just answer basic questions," says Todd Stanley, product
manager for TurboTax.
"It generally saves people about 50 percent of their time to
prepare their return" when compared to filling out the forms
Computer programs are especially nice because
you can avoid the task of having to read IRS jargon in the instruction
booklets. Plus, these programs don't cost nearly as much as the
paid professionals. They vary in price from free for the most basic
software to about $50 for deluxe programs.
Computer tax software can:
Speed up the process of filling out
Provide help if you get stuck.
Highlight deductions that you may overlook.
Do all the math for you.
A word of warning when using computer software:
Make sure you download the latest updates for the program before
And keep in mind that the software ultimately
depends on the data you enter.
-- Updated Dec. 26, 2002