Tax Basics: How Will You File This Year?

IRS form 1040

Once you have all your current year tax documents ready it’s time to prepare and file your taxes. There are a number of options available to you and they vary in cost and how easy they make things for you.

Start by thinking about what, if anything, has changed from last year. Maybe you bought or sold a home, moved to a new state, got married (or divorced), had a baby, opened a business or started taking retirement distributions. These types of life events that may result in you needing more information for your tax reporting and additional complexity. The more changes and the more complexity in your taxes, the more help you will probably need.

So, what are the filing options available? Here’s a summary:

Paper Manual Filing

You can print off the 1040 tax form, manually fill it in, and mail it to the IRS. Or use the fillable forms and key the numbers directly into the form on the IRS website, then print it.  However, with both of these options, there may be several schedules (secondary forms) you also need to fill out in order to complete the main 1040 form. If you plan to do it this way, be careful not to make any math errors and get the form in the mail on time. Your return is considered filed on time if the envelope is properly addressed, postmarked, and deposited in the mail by the due date (April 15 most years). There is no charge for this type of filing.

E-file / Tax Preparation Software

There are many online web tools and tax software programs available to help you complete and file your taxes electronically. These programs will ask you a series of questions about events in your life, marital status, income, available tax credits, deductions, etc. Using tax preparation software or online web tools is the best and simplest way to file a complete and accurate tax return because it guides you through the process and does all the math for you. Some examples are Tax Act, H&R Block, TurboTax, Jackson Hewitt and TaxSlayer. If you use an online service or tax preparation software, they’ll usually complete and submit the necessary forms to the IRS and state taxing authority on your behalf. The costs for use of the software and e-filing vary, but if your income is below a certain level you can take advantage of……

IRS Free File

If your income is below a certain level (AGI of $72,000 in 2020) you are likely eligible for one of the IRS Free File partner offerings. The IRS estimates that up to 70% off Americans are eligible for at lease one of the partner offerings that provide a free federal return. You can check your eligibility and compare offers that may be available to you at the IRS Free File website.

Hire a Tax Professional

There are several large, national tax preparation services as well as individual CPAs (certified public accountants) available if you have a more complicated return, questions, need additional help or just want to maximize your refund. You will collect all your documents and provide them to the preparer. They’ll need to meet with you or send a questionnaire in advance to understand more about you and your situation. They will also complete and submit the necessary forms to the IRS and state tax authority for you. This type of service will cost the most since you are using the services of a tax professional.

The IRS recommends utilizing electronic filing and requesting direct deposits of any refunds. By filing electronically, you’ll typically get your refund sooner and it’s considered safer than having the check mailed to you.

One final note – the IRS has information on their site about free tax assistance through the IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) programs for taxpayers who qualify. Check it out here.