Use tax-prep software without hesitation
It’s arguably the most tedious, tiresome and at times traumatic financial task that Americans are called upon to do each year. I’m talking about doing our income-tax returns.
No surprise, as tax laws become ever more complex, that more Americans are seeking professional help. Last year, paid preparers submitted about 63 percent of returns received by the Internal Revenue Service.
To hire the right professional, you should interview several candidates, carefully considering experience and credentials.
"Go with know-how," recommends tax-publisher CCH, a unit of Amsterdam-based Wolters Kluwer. Even when tax laws don’t change, provisions can go into effect at different times. Some, such as eligibility to deduct IRA contributions, phase in and out depending on income, with the numbers sometimes changing every year.
Therefore, as CCH advises, it pays to check whether preparers belong to organizations — for example, professional groups of enrolled agents or certified public accountants — that require or at least encourage members to pursue continuing education.
You also don’t want your preparer to spend more time than necessary — and end up charging you more — by having to rifle through a disorganized mess of tax documents and receipts stuffed into the proverbial shoebox.
At least keep separate folders for each kind of tax-related documents, such as W-2s, different types of 1099s, and receipts that support tax deductions.
Also, to avoid surprises, get payment terms in writing.
If you prepare your own return, you can get help from tax-prep software, both desktop and Web-based, that has become increasingly popular and sophisticated (in 2007, some 22 million returns were filed from home computers).
I feel comfortable recommending Intuit’s TurboTax (website: www.turbotax.com); H&R Block’s TaxCut (www.taxcut.com); CCH’s CompleteTax (www.completetax.com); and 2nd Story Software’s TaxACT (www.taxact.com).
I have used TurboTax for years and like it best for what I consider to be a more-intuitive interface and clearly worded "interviews" (tax-preparation software asks you questions and, based on your answers, puts the right numbers on the right tax forms) free credit report online.
This year’s TurboTax features a new "life events" area that allows a more-personalized interview (for example, if you got married or divorced, had a child, or started a new business last year). The program includes enhanced tools to reduce the risk of an audit or help you respond if you get audited.
If you decide to use tax-preparation software, it’s up to you to choose one that clearly handles and explains the tax issues that apply to you. You can learn about the different products at the sites I listed above.
You also can use software to prepare your return and have a professional review it for less money than having the pro do everything from scratch. Bob Meighan, vice president of Turbo Tax, said 10 percent to 15 percent of first-time users do this before fully "trusting" the software in subsequent years.
Compared with pencil-and-paper returns, software avoids math errors and reminds you to verify all information. According to the IRS, incorrect or missing Social Security numbers are the most-common mistake in tax returns, more so than math errors. At the least, software will spot missing numbers.
When a return with incorrect or missing information is filed, the IRS rejects it and sends a notice to the taxpayer, possibly delaying a refund by weeks or even months, cautions the National Association of Tax Professionals, a group with more than 18,600 members nationwide (www.natptax.com).
In other instances, the IRS may issue a refund, but for less than you expected. This may occur when there is a missing or incorrect Social Security number for a claimed dependent on the form.
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2008, TRIBUNE MEDIA SERVICES INC.