Ah, the sun is shining, the birds are starting to return, and everywhere you turn, you see the signs of spring starting to make their appearance. Yes, the winter is becoming but a memory, and the new season is upon us. And you know what that means: it's time to file your taxes!
I realize that for many of you (particularly my fellow personal finance bloggers), the first reaction you have to being told it's time to file your taxes in mid-March is, “You're a bit late, Roger; I filed back in early February, when I first got all the needed paperwork.†And hey, good for you; I helped my fiancee finish her own taxes back in February, and have only been waiting on my own because (a) I was making sure that I got all the needed paperwork, and (b) a preliminary run on doing my taxes seemed to indicate that I would owe money, so I have incentive to hold off until near the filing deadline.
Still, it's always good to get a jump on things while you can. I thought, as you decide how you're going to file your taxes this year, to look at three of the most common approaches people take, and see the pros and cons of each. Here's hoping it inspires you to get your own taxes filed before the month is out (don't worry, I'm in the same boat, trying to get all of this done in the near future before the tax man cometh).
Method 1: Do the Taxes Yourself
Pretty simple, really; you can get all the paperwork you'll need for your taxes from the IRS. Then, simply fill it out using all the paperwork you've been sent from your job, investment houses, and anywhere else you've had financial interactions, and there, you're done! Easy, no?
Pros
-It's hard to get cheaper than doing it yourself.
-You can get a first-hand view of what is involved in tax preparation.
-You can also see what can be done to lower your taxes next year.
Cons
-Unless your financial situation is really simple, it can be overwhelming to try to do your own taxes.
-Similarly, if your financial situation is at all complicated, you can end up overpaying by missing deductions or other issues.
-Also, overpaying is the least of your worries if you find yourself being audited…
Method 2: Use Tax Preparation Software
Definitely a popular method (and the one I've been using the past few years myself, via H&R Block At Home), there's plenty of software out there that can walk you through tax preparation. It's hard to go anywhere with a software department that isn't offering one or more tax prep options at this time of year.
Pros
-More likely to catch all the deductions for which you are eligible.
-Costs a fraction of the amount as professional tax help.
-Many companies that offer such software also provide guarantees if your tax return is audited or you face other legal issues.
Cons
-Can still be confusing, depending on the software being used.
-For truly complicated financial situations, it might not be up to the task.
Method 3: Get Professional Help
If all else fails (or you know your tax situation is going to be a major undertaking right off the bat), you can always get professional help in preparing your taxes. There are numerous companies that do good business providing real, live people to help walk you through the process. (That our tax system is so complex that a major industry has sprung up just to help people file taxes is, alas, a subject for another day.)
Pros
-With a well-trained, competent professional, it's difficult to miss anything in your taxes that can save you money.
-For those who aren't as comfortable working with a computer, it can prove a much more pleasant experience.
-Depending on the type of professional, it might be possible to arrange your finances to lower future taxes at the same time you're filing this year's taxes.
Cons
-Almost certainly the most expensive method
-That ‘well-trained, competent professional' part isn't always the case; there are incompetent, inept, or even criminal tax prep workers out there.
Which Method is Right for You?
Ah, the $64,000 (or at least, however much you will end up owing in taxes) question. As with many of these issues, there's no one right answer. If your financial situation is particularly simple (especially if you are, say, a teenager working your first job), you can probably fill out your taxes manually without too much trouble. (In fact, I'd recommend doing so at least once or twice, if only to get familiar with tax forms and how they are prepared.)
As you get older and your tax situation becomes more complicated, it's probably a good idea, for both your free time and your sanity, to start using tax software. It does make it easier to get everything finished, as well as catch all the tax breaks and deductions that you might miss. If your tax situation gets really complicated (or your potential liability gets high enough), it's probably worth having a tax professional look it over, perhaps as a double-check after you make a first attempt.
Regardless of what you decide, remember to get your taxes prepared early, so you can get your refund sooner (or if, like me, you owe money, you have more time to save up the amount). It's far from too late, but there's no sense waiting any longer. Happy Tax Preparation, Everyone!