By CPA Trendlines Research
NOTE: Here’s a handout for tax preparers to give to clients.
Tax returns don’t have to be a terrible headache or big expense. Minimizing the work required by the tax preparer during the busy tax season will help minimize the cost.
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Here are 10 ways you can minimize the cost of tax preparation:
1. Get Organized Early: Gather all necessary documents (W-2s, 1099s, receipts and records) ahead of time to avoid hourly fees for extra time spent searching for missing paperwork. Keep up with records throughout the year. Tell your tax preparer that you plan to use his or her services and ask for tips on keeping records.
2. Use Tax Preparation Software: For relatively straightforward returns, tax software like TurboTax or H&R Block can often be cheaper than hiring a tax professional. The apps can also help prepare documentation for the tax preparer.
3. Take Advantage of Free Filing Services: The IRS Free File program and some online tax software offer free filing for taxpayers under a specific income level, often for both federal and state taxes. Taxpayers should be aware that they may go through the whole process only to find, at the end, that they are not eligible for the free service.
4. File Electronically: Many preparers charge additional fees for paper filing because of the extra time involved. Ask your preparer whether this option will cost extra. E-filing saves time, reduces the chance of errors, and can result in quicker refunds.
5. Look for Low-Income Taxpayer Clinics (LITCs): LITCs offer free or low-cost tax preparation services to eligible low-income taxpayers. Local community centers or IRS resources can help you locate a nearby clinic. Consider having a tax preparer review your return for quality.
6. Use a Volunteer Income Tax Assistance (VITA) Program: The IRS sponsors VITA programs that provide free tax prep for people making $60,000 or less, the elderly and those with disabilities. Find these programs at community centers, libraries and other locations. Don’t count on VITA for a last-minute preparation. Again, consider having a tax preparer review your return for quality.
7. Ask About Flat Rates: Some tax preparers charge a flat rate rather than hourly fees. This can be cost-effective if you have a straightforward return or don’t require complex advice. Having your “ducks in a row” – that is, all information delivered in an organized package – could result in a lower flat rate.
8. Organize Business Expenses (If Self-Employed): Prepare a list of business expenses in advance to reduce the time a preparer spends on organizing and categorizing them, which can save on hourly fees. Ideally you’ll be using a bookkeeping app that the tax preparer can use.
9. Only Pay for What You Need: Some preparers offer different service packages. For example, if you have a simple return, avoid paying for “premium” services that may be unnecessary. Ask about this up front, especially if using an LITC or other “free” service.
10. Use Last Year’s Return as a Template: Reviewing last year’s tax return can help you remember which forms and documents to gather, reducing time with the preparer and potentially saving costs. If you don’t have a copy, last year’s tax preparer, if any, should have a copy.
The keys to quick and low-cost tax preparation are to be proactive, organized, honest and thorough. Deliver a complete package of information to the tax preparer.