"Can I self-file my Tax Return using Online Tax Program?" Most individual tax payers can self-file their tax return using online tax program. However as per the data released by the IRS, close to two-thirds of the tax payers still find comfort in having their tax returns prepared by a tax professional. Individual preferences and complexity of tax situations continue to drive individual and small business tax payers to work with tax professionals. There are advantages in filing the tax return using online programs: 1) Working at your own pace. 2) Convenience of filing taxes while watching a football game at home. 3) Saving money with lower tax filing costs. 4) Simulating different financial scenarios and tax situations. 5) Quick and easy access to Tax Refund money.
How to Choose the Right Tax Program?
Key factors to consider while selecting a good do-it-yourself tax software program:
Phone Support: Select a company that offers phone support in case of an issue while preparing the return.
Tax Law updates: Make sure the software is updated with the most recent changes in tax laws.
Data Protection: Make sure the online E-file provider uses secure technology to transmit data. Identity Theft is a real issue and tax returns contain your confidential data.
Tax Deductions: Good tax software will have a step-by-step guide asking questions and dig up tax deductions.
Accuracy and Guarantee: Check if the company offers guarantee for accuracy of the program. In most cases the guarantee may be limited only to the extent of the fees paid for the program. You may be out of luck, if an error results in IRS penalty of $1000.
Audit Support: Check if the software company provides a tax professional to assist you in case of an IRS audit.
Picking the Right Tax Program for your Tax Situation
Having short listed tax programs based on the above criteria, now you need to select a Tax Software that best suits your particular tax situation.
Simple Tax Situations
In a simple tax situation you may have salary (W-2), interest and dividend income and take standard deductions on the tax return. You may be able to prepare your federal and state tax return online very quickly and at a cost of under $30-$50 using several tax programs such as TaxAct, TaxCut (Part of H&R block at home online and TurboTax.
These are good products for savvy individuals with simple tax situations. Give yourself 2-3 hours to answer the guided tax questionnaire and review the data once you have collected all the relevant information.
Free Tax Software
If your Adjusted Gross Income is less than $56,000 you may qualify for ‘Free File' online tax program offered by IRS in partnership with private companies. You need to start on IRS website in order to get the ‘Free File' version. The program provides step-by-step guide to e-file the return and also sets up direct deposit of your tax refund into your bank account. Now, here's a free lunch in America!
Be careful with ‘free' tax filing offers on the internet. Half way through the program may inform that your tax situation makes you ineligible for the ‘free' version. This could be quiet frustrating as you leave your confidential data behind. If the tax program is not approved by the IRS, you are better off staying away from it. The potential damage and cost of loosing your personal data could be very high.
Complex Tax Situations
Complex tax situations involve more than one source of income (W-2s, self-employed, 1099s etc), investments in stocks, real estate and business partnerships etc. They need serious number-crunching and you should be comfortable navigating through tax documents and familiar with tax concepts such as figuring the cost basis of your assets before depreciation etc. The web version of TurboTax Premier is a good place to start.
Working through the complex tax situation can get quiet tiresome, often going back and forth reviewing the data, fixing errors and may take 4 to 6 hours to finish. Many tax payers with a complex tax situation simply prefer to enjoy their hard earned weekends and let a tax professional handle the complex number crunching. Give yourself enough time ahead of the tax deadline as you may run into road blocks and getting an appointment with a tax professional at the last minute may prove difficult.
Special Tax Situations
There are several special tax situations that the tax software may not be able to handle effectively. Investments in small business corporations, net operating losses, home office and other special deductions, active trading with mark-to-market accounting, H1 and other temporary work visa taxes, individuals with income in multiple states, ITIN applications and US tax resident tests for immigrant workers require special tax knowledge and are not suitable for online tax programs.
Most of the tax programs will let you try for free before filing the actual return. This tax season try out some of the online tax programs and see if it works for your tax situation. And finally for those of us that prefer the comfort of human presence and discuss tax saving ideas, there will always be tax professionals that can be counted upon.
This Article provides only an overview to the complex Tax Laws. It is not exhaustive nor a substitute for Independent Tax Advice provided by a Tax Accountant or a Tax Attorney familiar with your case.