Choosing the Tax Filing Method That’s Right for You


With D-day for taxpayers less than one month away, many are scrambling to get their forms in order and wondering what the best method is to submit their returns to Uncle Sam.

There are a slew of filing options for taxpayers including free software from the government, buying software from tax giants, visiting a free tax clinic or paying an accountant. But which one is right for you? Well, it depends on your situation, the experts say.

Senior tax analyst Robin Christian of Thompson Reuters says there are two main things that can help taxpayers determine which method is best for them: their own sophistication and the complication of their tax situation. Taxpayers with simple W-2 forms and deductions can often prepare their own returns, however if they are uncomfortable with numbers or not familiar with computers, finding a professional may be the better option, she says.

Taxpayers can seek out a mom-and-pop service center, or have a tax franchise like H&R Block (NYSE:HRB) or Liberty Tax Service to help them sort out their returns. However, just because a paid professional is doing the math, doesn’t mean you are not responsible for the result.

“Taxpayers have to understand that no matter who does their taxes, they are responsible for the return,” Christian says. “Never sign a blank form and let the preparer do it all.”

When going to a preparer, the customer should also be aware of pricing; the preparer is not allowed to charge based on a taxpayer’s refund amount.

Mark Steber, chief tax officer at Jackson Hewitt, says that taxpayers often focus too much attention on the price of preparing their refund, when they should be thinking more about their own situations.

“People see it’s free, and think that method must be better. But not all taxpayers are good with the free Internet service, and not all taxpayers need a CPA or attorney.”

The more complicated a taxpayer’s situation, the better off he or she may be with a certified public accountant [CPA] or enrolled agent [EA], Christian says. These preparers can not only give taxpayers options for getting the most out of their returns, but they can also offer advice for the future, which isn’t something franchises or mom-and-pop shops do.

Steber says that when seeking out a paid professional to handle your return, it’s key to find someone that specializes in your tax situation—be it profession, self employment or small business owner.

At-home software programs like Turbo Tax are also a good idea for taxpayers with simple returns, she says.

“They provide question-and-answers that walk you through what you need to do,” Christian says. “But it’s time consuming and you do need to spend the time to understand what you are getting in your return.”

While at-home programs have become more sophisticated and reliable recently, Steber warns they are not fail proof.

“They are safe from a mathematical error standpoint, but they aren’t safe from missing a credit or overall deduction,” he says. “Software should be used as a part of the process, not solely the reliant. Many of them ask good questions, but they aren’t aware of all that goes on in your life throughout the year.”

According to IRS spokesman Anthony Burke, self-prepared returns are the largest growth category the agency has seen in the past few years. He added that E-filing and choosing direct deposit for returns is not only convenient, but also the safest method.

“I think that personally, the convenience of doing it on their own computer and e-filing, and choosing the direct deposit option is the fastest, safest and most accurate choice,” Burke said.

E-filing has continued its growth annually, says Burke.

“It has grown every year since the beginning of the program. “People are more comfortable doing things from a home computer.”

As of March 4, the IRS had received more than 60 million returns, with more than 53 million being E-filed, according to its site. Of those E-filed returns, 32,680,000 were done by tax professionals, and 21,182,000 were self-prepared. Later in the season, however, Burke said more paper returns get mailed in, making that method somewhat less of a minority.

While the IRS touts the convenience of filing electronically, it hasn’t caught on with all taxpayers yet.

“The government would really like us all to E-file, but it’s hard to get up to 100% doing it that way,” Christian says. “You have too many people who don’t even want to use a computer—the older generation is more reluctant to move to computers.”

The IRS does not recommend one method over another.

“We think that people need to look at their own situation, and do what is best for them,” Burke says.