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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 needs.

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 Schedule D."

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That was in addition to filling out Form 1040, Schedules A, B, C and SE, Form 2106 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 system.
• 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!

Professional presence preferred
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 since March."

When a franchise operation can help
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 by hand.

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 the forms.
• 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 you file.

And keep in mind that the software ultimately depends on the data you enter.


-- Updated Dec. 26, 2002

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See Also
Preparing for Tax Season Home
Getting organized
Getting a jump on the tax paper trail
Picking a tax pro
Tax season can be scam season
Tax recordkeeping made easy
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