You have several options for preparing your taxes. But, which is the best way to prepare and file taxes to get your return done quickly and correctly?
- Using tax software
- Hiring a tax professional
- Types of tax professionals
- How can I file my tax return?
- How to calculate my taxes
- Step 1: Determine your tax filing status and dependents you’ll claim
- Step 2: Tally your income
- Step 3: Apply relevant deductions
- Step 4: Apply relevant tax credits
- Step 4: Calculate tax bill (or refund)
- The best way to prepare and file taxes
• Preparing taxes by hand requires knowledge of tax forms, and it also leaves you prone to making mistakes.
• Using tax software eliminates arithmetic errors, and allows you to import necessary tax forms all for a reasonable cost.
• Hiring a tax professional provides a hands-off approach to preparing your taxes.
• You can file taxes by mail or online through e-file, with the latter allowing for quicker processing and more expedited refunds if applicable.
Do I have to file taxes?
Generally, not everyone needs to prepare a tax return each year. Determining if you need to file a return will come down to several factors related to your tax situation. The items that affect whether you need to file taxes or not will depend on your income type (whether from self-employment, through your employer or investments) and amount, tax filing status, age, and other factors.
Many Americans don’t need to file a tax return each year. In fact, you might not need to file a tax return unless your total income exceeds certain thresholds, or you meet specific filing requirements.
Normally, if you only earn income from your work as an employee and it's less than the standard deduction for your filing status, you don't need to file a tax return. The threshold for needing to file a tax return is lower if you earn self-employment income. In 2023, that’s $400 of net self-employment earnings. However, even if this is the case, you may still need to file a tax return if you meet certain conditions. You won't need to file a tax return if all of the following are true for your situation:
- You’re under age 65
- Earn less income as an employee than the 2023 Standard Deduction for your filing status
- Don't have any special circumstances that require you to file (like earning $400 or more of net self-employment income)
- Don’t have unearned income of more than $1,250 for 2023 as a child or other dependent
If you don’t meet all of these conditions, you may need to file a tax return. However, in the event you don’t meet all of these conditions, you may still want to file a tax return anyway. For example, you may have earned income during the year and had taxes withheld from your pay. If you’d like to get back any of the excess money withheld by your employer, you’ll need to file a tax return to be issued a tax refund for this money owed to you.
That’s because if you don’t file your tax return to claim this refund, the IRS won’t issue you a refund. Generally, the IRS doesn’t automatically issue refunds if you’ve overpaid your tax bill each year. In that case, you want to file a tax return to claim any tax refund you may be entitled to claim.
For example, suppose you file as a single taxpayer who had $700 of federal income tax withheld from your $7,000 of earnings and no one else can claim you as a dependent on their tax return. You likely can get that money back since you earned less than the Standard Deduction for your applicable filing status. However, you can only get it by filing a tax return to claim a refund.
How can I prepare my tax return?
When it comes to preparing your tax return and filing it with the IRS, you’ve got three options:
- Preparing the tax forms the old-fashioned way: by hand and mailing them to the IRS.
- Using online tax software to prepare your tax return through completing the required tax forms through on-screen Q&A prompts and guidance.
- Going with a tax professional to handle your tax return preparation and filing (note: some online tax software offers assistance from qualified tax professionals as a value-added service).
If you choose to prepare your tax return with the second or third options, you can elect to e-file your taxes directly with the IRS, the preferred method. You may also opt to mail in your prepared tax return, though the IRS states this could take up to 6 weeks to process.
Despite these differences in timing, the best way to file your taxes depends on your personal preferences and what works most effectively for you.
Filing taxes by hand
The original way to prepare your own taxes has decreased significantly, according to the IRS. Over 90% of tax returns filed in 2023 came through e-file.
However, that doesn’t mean millions of people still don't prefer doing their own returns by hand. If you’d like to bust out the calculator and fill out paper tax forms by yourself, you’re welcome to do so. If you choose this route, you should either have an uncomplicated situation, meaning circumstances like only earning income from an employer and taking the Standard Deduction, or have a significant understanding and working knowledge of the forms you’ll need to prepare your return.
You’ll also want to make sure you review all of the numbers on your forms and double-check your calculations.
- Better understanding of your taxes. Doing your taxes by hand can have great benefits and shouldn’t be discounted (though most Americans do based on the number of taxpayers who e-file each year). By choosing to print out your tax forms and prepare them yourself by hand, it forces you to understand your taxes.
Sitting down with your Form 1040 and any supporting Schedules or other tax forms can be a great way to learn about the ins and outs of your taxes. This can include concepts like:
- what your tax bracket is
- how capital gains and losses work
- whether you should itemize or claim the standard deduction
- the differences between tax credit and tax deductions and more.
Learning these important items once might help you now and down the road. Having a deeper level of engagement can lead to better understanding, and strategy for preparing your taxes in future years.
- Requires (extensive) knowledge of tax forms and calculations. Just the same, preparing your taxes by hand can be challenging for the inexperienced. Navigating tax forms by yourself without prior knowledge might be overwhelming, especially if you’ve waited until later in the tax season to prepare your tax return and ready it for filing by mail.
- Prone to making errors. Further, by doing your taxes by hand, it opens you up to greater potential for making a mathematical error on your taxes. Whether it’s an honest mistake or not, the IRS might not take kindly to misreporting your tax liability.
Using tax software
Tax software exists to make your life easier. It can guide you through the process of preparing and filing your taxes, help ensure that you're taking advantage of all the tax deductions and credits available to you, and save you money compared to the cost of hiring a tax professional. There are a variety of different types of software available, so it's important to choose one that can help make the process easier.
The two types of tax software works in the following ways:
- interview-based tax software: The tax software has you answer questions prompted by the software, filling out your tax return as you provide information about your situation. The Q&A format makes it easy to gather your information, placing your details on the relevant forms automatically as you go. The benefit of this style of tax software is its ease of use if you don’t know all the forms used to prepare your tax return.
- form-based tax software: This style of tax software requires a bit more knowhow from the user. You need a working knowledge of the tax forms you’ll need to prepare your return. The tax software steps through each form, requiring you to place your information in the corresponding boxes on your tax documents.
The interview-based tax software is often what many individual taxpayers think of when it comes to tax software because it makes the tax return preparation process quick and easy without much prior knowledge of tax forms. For some, this may be the easiest way to file taxes.
- Step-based tax return preparation. Interview-based tax software provides step-by-step instructions for completing tax returns, and it can also help to ensure that all the required information is included.
- Offers support (technical and from tax professionals). Many tax software programs offer support in case of questions or problems. This can be technical support if you’ve run into an issue with the software itself, or through a tax professional if you’ve got a question about your specific tax situation that requires guidance or further explanation.
- Always up-to-date. And because tax software is updated regularly, filers can be confident that they are using the most current version of the tax code.
- Cheaper than using a tax professional. Best of all, using tax software to prepare and file taxes is often much cheaper than hiring a professional tax preparer. As a result, taxpayers who are looking for a way to save money and headaches during tax season should consider using tax software.
- Flexibility for preparing taxes on your schedule. Using tax software lets you prepare taxes in a way that best suits your schedule. Prefer working late at night, early in the morning or over the weekend? Tax software enables this all on your own schedule.
- Highlights available deductions and credits. Tax software will present various deductions and credits as you prepare your return, potentially saving you money on taxes.
- Automatically transfers data from previous returns. If you’ve used this tax software in previous years, the software allows you to transfer old information to your new return, saving you time.
- Transfers data from federal to state return. Don’t like entering the same info on both your federal and state returns? Tax software transfers the relevant information and tax data between returns, saving you additional time.
- Flags errors prior to submission. Tax software helps prevent errors on your return, flagging any areas where you may have misentered a number, misspelled a name, or made another mistake.
- Shows instant impact on taxes you owe as you enter information. As you go through your return populating fields related to income, deductions and credits, tax software shows you instantly how these changes affect your taxes.
- Can import tax forms and information. Tax software offers the ability to integrate with several businesses, organizations, and more to download relevant tax forms and information onto your return.
- Requires access to a computer. If you don’t have access to a computer, doing your taxes can be a challenge with tax software.
- Doesn’t provide tax advice. Tax software can help with preparing your return and checking for all available deductions and credits, but it can’t always provide personalized tax advice to save you money. This might require consultation with a tax professional who can understand your personal situation.
- Need time to complete your return. Despite tax software’s ability to expedite your tax return preparation and filing, you still might not have enough time to handle your taxes by yourself. If so, hiring a tax professional to handle everything might be a better fit.
Hiring a tax professional
If you’d like more tailored tax assistance than doing your taxes by hand or using tax software to prepare your taxes, a tax professional can help. Hiring a professional can provide several benefits, though with added cost.
- Tax advice. One of the biggest benefits of hiring a tax professional is that you can receive personalized tax advice. A tax professional can look at your specific situation and give you customized advice on how to maximize your deductions and minimize your tax liability. This type of personalized attention can be invaluable, especially if you have a complex financial situation.
- Convenience. Hiring a tax professional is a convenient way to prepare and file your taxes because you don't have to set aside time to do your taxes yourself. You can just drop off or send over your paperwork and let them handle it all for you.
- Handle complex situations with expertise. Depending on your tax circumstances, you can have a complex tax situation requiring greater expertise such as if you’re self-employed, have Trust Fund transactions, or need to navigate the Alternative Minimum Tax. Fortunately, tax professionals exist for these very situations, providing the expertise and guidance you need to get the job done right. They can help you maximize your deductions, identify potential tax savings opportunities, and ensure that you meet all filing deadlines. Additionally, a tax professional can provide peace of mind by handling the details of your tax return so that you can focus on more important things.
- Find deductions or credits you might not have found otherwise. Tax professionals are experts who should have up-to-date knowledge of the tax code and can help you take advantage of deductions and credits that you may not be aware of. While tax professionals might cost more than using tax software, by claiming any deductions or credits you’d otherwise have missed, they might end up costing you less through saving you money on taxes.
- Audit assistance. In the unlikely event you’re selected for an audit by the IRS, having a tax professional by your side can be invaluable. They'll know how to gather the necessary documentation and represent you in a way that maximizes your chances of a favorable outcome.
- Cost. One of the main disadvantages to hiring a tax professional is the cost. Tax professionals typically charge by the forms you use to report your tax situation or by complexity of your tax situation. Depending on the involvement needed for your taxes, the bill can quickly add up.
If you're looking for ways to save time and money on your taxes, using a tax professional is a great option. They can save you both time and money, and they can make sure that your taxes are filed correctly and on time.
TurboTax Tip: If you're considering using a tax professional, be sure to ask around for referrals. You can also check with your local chamber of commerce or Better Business Bureau for a list of qualified professionals in your area.
Types of tax professionals
When it comes to taxes, there are a lot of different professionals out there who can help you. Here are three of the most common types of tax professionals:
- Enrolled agent: An enrolled agent is a tax professional who's been federally licensed by the IRS. They must pass a rigorous three-part exam and complete continuing education requirements to maintain their license. Enrolled agents can represent taxpayers before the IRS for individual, business, and estate taxes.
- CPA: A certified public accountant (CPA) is a tax professional who has met stringent educational and experience requirements set forth by their state's board of accountancy. CPAs are licensed by their state and must complete continuing education requirements in order to maintain their license. CPAs can prepare and file several types of tax returns, including for individuals and businesses. You’d want to hire a CPA if you need help with the business and accounting side of your taxes, such as for filing taxes, finding relevant deductions and credits plus financial planning needs.
- Tax attorney: A tax attorney is a lawyer who specializes in taxation. They can represent taxpayers before the IRS, as well as in civil and criminal tax court. Further, they can offer tax preparation services. Tax attorneys typically have a law degree and a license to practice law in their state. You’d want to consider a tax lawyer if you need legal advice in writing, representation in court, or assistance with tax return preparation.
When choosing a tax professional, it's important to consider what services they offer, their experience, and their fees. It's also important to make sure that they are licensed and insured.
How can I file my tax return?
When you finish preparing your return, you can file your taxes in one of two ways: through the mail or online through E-filing.
While sending your return through the mail might be an acceptable method, the IRS strongly prefers (and even recommends) E-filing your tax return.
The reason is that the IRS has stated that e-filed returns provide more accurate information, avoid processing delays, and speed up delivery of tax refunds (especially when selecting to receive refunds via direct deposit into a bank account).
You can e-file your return directly with the IRS if you prepare your own taxes on digital forms or through tax software after you’ve filed your return.
If you’d like to mail your tax return to the IRS for processing, the IRS provides a state-by-state listing of IRS offices where you should send your return.
TurboTax Tip: Filing taxes through e-file provides a more secure and expedited method for reviewing your return and processing any resulting tax refunds.
How to calculate my taxes
When calculating your income taxes, you can use the Form 1040 tax return flow to understand the steps involved.
Step 1: Determine your tax filing status and dependents you’ll claim
First, you’ll need to determine your tax filing status and whether you’ll claim any dependents on your return. Your filing status not only determines your eligibility for certain tax deductions and credits, but it also indicates the tax brackets you should use for calculating your tax bill.
Step 2: Tally your income
Once you’ve provided this information, you can begin tallying all of your income together. This can include income reported on:
- Form W-2: Wage and Tax Statement
- Form 1099-NEC: Non-employee Compensation
- Form 1099-MISC: Miscellaneous Income
- 1099-R: Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
- 1099-B: Proceeds from Broker Transactions
You may need to attach supporting tax forms to document this income for your return. Further, you may also need to consider adding crypto tax forms to report any income you’ve earned from participating in crypto activities.
From here, you need to remove any adjustments to your income from Schedule 1 for items like qualified student loan interest, deductions for educator expenses, cancellation of debt, qualified retirement plan, health savings account contributions, and more.
The resulting figure is your adjusted gross income.
Step 3: Apply relevant deductions
After you’ve calculated your taxable income, you need to begin applying relevant deductions. If you have several expenses that qualify as itemized deductions, you can add those together to see if you’d be better off itemizing or simply claiming the Standard Deduction. Odds are, simple tax situations benefit more from claiming the Standard Deduction.
However, be sure to compare the two and see which method delivers you more tax savings. Tax software can quickly compare these two figures as you enter information, electing to claim the more beneficial deduction.
Once you’ve added all of these income sources together, reduced it by any adjustments to income, and claimed your applicable deductions, you’ll have your taxable income.
Step 4: Apply relevant tax credits
The next step involves applying relevant tax credits to reduce your overall tax bill. This can include items like the Child Tax Credit, Earned Income Credit, Federal tax credit for solar energy investment, and more.
If you have a mix of refundable and nonrefundable tax credits to claim, you’ll need to determine if these credits will result in a negative tax balance. If claiming these credits triggers a tax refund, only certain tax credits can be paid to you as refundable tax credits. This means they result in a refund larger than the amount of tax you paid throughout the year.
Step 4: Calculate tax bill (or refund)
The final step for calculating your tax bill is using tax brackets to determine your total tax bill based on your taxable income. The U.S. uses a marginal tax bracket system, so you’ll need to apply the applicable rate to each “chunk” of income.
For example, if you file as a single taxpayer and have $50,000 of taxable income, you’d apply the 2023 tax brackets to your income as follows:
- 10% for income up to $11,000 ($1,100)
- 12% for income between $11,000 and $44,725 ($4,047)
- 22% for income between $44,725 and $50,000 ($1,160.50)
Your total tax bill in this case would be $6,307.50. After accounting for all your income, deductions and credits, if you had more than this withheld from your paycheck during the year, you’d receive a tax refund after filing your return with the IRS. If you paid less than this, you’d need to make a payment to the IRS for the remaining balance due.
The best way to prepare and file taxes
When it comes time to decide the best way to prepare and file taxes, it boils down to what you find works best for your needs. If you’d like an intimate familiarity with your tax situation and command a strong knowledge and understanding of tax forms, preparing your taxes by hand might make a great choice.
On the other hand, if you’d like the security of guided assistance in preparing all the required forms on your return, using tax software might make the most sense for you.
Lastly, if you’d like the expertise of a tax professional to handle all your tax needs, hiring one might save you time and prepare you for any ongoing tax planning needs you’ll have.
The answer to which way is best isn’t the same for everyone. It'll depend on your personal preference and situation and it’s up to you to make your own decision.
When weighing the pros and cons of each method of tax preparation, also consider two strongly encouraged decisions from the IRS: filing electronically and using direct deposit for any tax refund you might receive.
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