Is it tax season again? Filing your tax return is often the most important task that demands your attention at the beginning of each year. Plus, filling out your tax forms correctly can make your life easier and also save you from getting into financial trouble with the Internal Revenue Service (IRS).
Some people choose to hire a tax preparer to do their taxes, while others use online tax software such as TurboTax to do their taxes themselves. Either way, when choosing a tax preparation company, you want to make sure you are getting the best tax service possible in order to guarantee the best tax experience as well as the best possible tax refund.
It’s also very easy to get confused with the different tax forms, tax jargon, and various types of taxes you might have to pay, and a good tax prep company or preparer will guide you through this process and make your taxes easier to do, rather than harder or more complicated.
Before you decide on what company best fits your needs, here are a few important things you need to consider before choosing a tax preparation service, as well as some helpful terms and documents to be familiar with to make your tax preparation process as smooth as possible.
It’s easy to get lost in the complicated world of tax preparation and end up more confused than you were when you started researching. Below, we’ve compiled a simple, albeit non-comprehensive, list of a few terms you’re likely to encounter a lot in your tax research.
If you still have questions about tax preparation or concerns related to your specific tax situation, we recommend asking these questions when you talk or meet with a certified tax pro or enrolled agent.
CPA — Stands for Certified Public Accountant. These are people who have completed training in accountancy from a college or university and have also met other requirements related to their experience and character. Some CPAs specialize specifically in tax preparation.
Deduction — Any money that can be subtracted for your taxable income, thus lowering the amount of taxes you will have to pay. Common deductions include charitable contributions, mortgage interest paid, IRA contributions, and 401K contributions, though there are others that might apply to your tax situation.
Dependent — Your dependents include any children or qualifying family members for whom you provide the primary source of financial care. You cannot claim a spouse as a dependent, nor can you typically claim children over the age of 24 except in special circumstances.
EA — Stands for Enrolled Agent. This is the highest credential awarded by the IRS. Enrolled agents can represent any type of taxpayer before the IRS and handle all tax-related matters. They receive their training through passing a comprehensive IRS test or through being a former IRS employee, and complete 72 hours of continuing education courses every 3 years.
Filing status — Your filing status is essentially how the IRS determines at what rate your income will be taxed. It also determines which tax forms you will need to fill out when you file your taxes. The five common filing statuses are as follows:
IRS — Stands for Internal Revenue Service. The IRS is a service of the United States government that oversees the collection of taxes.
PTIN — Stands for Preparer Tax Identification Number. Anyone who prepares your taxes or assists you in preparing your taxes and gets paid for it must have a valid PTIN. Thus, ensure that any company you choose to work with to prep your taxes has one.
Taxable income — This is the portion of your income for the given tax year for which taxes can be collected. If you are eligible for certain deductions, your taxable income will be lower and you will pay taxes accordingly.
When you are ready to file your taxes, the IRS expects to see a number of forms depending on your employment status, level of income, assets held, etc. Some of these forms are provided by other people, such as your W-2 form, which comes from your employer. Others, like the IRS 1040 form, you fill out yourself, or have your hired tax expert work with you to fill out on your behalf.
The infographic below gives a brief overview of the most popular tax forms that you should be familiar with, and more detailed explanations of each one can be found below the graphic.
Tax forms to be familiar with:
The 1040 form is the main form that you use to report your income to the IRS, claim any tax deductions or credits that apply to you, and figure out the tax refund you will receive if you overpaid your taxes (or how much your tax bill will be for the year, if you underpaid your taxes).
Usually around January or February, you will receive a W-2 tax form from your employer(s). This form shows you the amount of money you got paid from your employer during the previous year, as well as how much you contributed to your company-sponsored retirement plan (401K) and the amount of taxes that your company withheld on your behalf.
You typically receive a 1098 form for one of two reasons: 1) You have a mortgage for which you are making interest payments, or 2) You are a college student paying tuition and/or student loan interest. In either case, many times these interest or tuition payments can be deducted from your taxable income, so the 1098 form is very important.
While close in number to the 1098 form, the 1099 form serves a very different purpose. The 1099 is mainly for reporting other types of income that you receive that aren’t from your employer. This could include income from dividends, interest, or distributions you earned from your investments, or even money you made from freelance work. Basically, your miscellaneous income gets reported on the 1099, which is why the form is actually called the 1099-MISC.
Depending on your situation, you may need outside assistance in order to file your taxes. For example, many tax filers who own their own business take their taxes to a tax preparer for outside assistance rather than do them themselves through tax software, such as TurboTax.
However, if you have a simpler situation such as being single and having one simple W-2, the better route may be to do your taxes through online tax software. Whatever your tax situation, make sure you identify the resources that will make your tax prep and filing as easy as possible.
Humans are creatures of habit, and if filing their tax return a certain way works once, they most likely want to stick to it again the next year. However, life is constantly changing, so deciding how to do your taxes should be something you research and think about every year.
Starting a business, having children, getting married, and getting divorced are life events that can dramatically change the way you file your taxes. Make sure you find the best tax filing option every year; just because filing taxes one way worked perfectly last year, that doesn’t mean that it is the best option this year and every year after. And taking time to figure out your personal tax situation and what tax filing option works best will also help you narrow down your search in finding the best tax prep service for your needs.
Whatever tax prep company you choose, customer assistance is one of the most important things to take into consideration. You want to make sure that you have the help you need when you have pressing questions that need immediate answers before you can proceed with your taxes.
If you use a tax software program rather than outside assistance, live chat and easy access to customer service is going to be essential. When considering tax prep companies, make sure their customer assistance is compatible with your needs.
While this may be your first time seeking a tax preparer, you are not alone. Thousands of Americans get help filing their taxes every year, and their experiences can help inform yours. Be sure to look for companies with positive reviews from verified customers.
Chances are, the more reviews you read, the better sense you will get about whether a tax prep company really has your best interests in mind and is truly reputable. Plus, the more success stories you read, the easier it will be to trust a tax prep company to take care of the hard parts of the tax preparation process.
Tax preparers are able to earn certain certifications or accreditations that make sure they are held to ethical standards and have the necessary knowledge and experience to prepare taxes for compensation.
An A+ rating with the Better Business Bureau is a good first thing to look for. This means the company is operating ethically and adhering to all laws and codes applicable to its industry. Other accreditations you can look for include the following:
Even if you don’t see these accreditations listed for the tax prep company you are researching, you will want to check that the company’s tax preparers have valid PTINs and are either CPAs, Enrolled Agents, or tax attorneys.
If you are skeptical about the qualifications of the person or company preparing your taxes, you’ll want to find someone else. There are plenty of accredited and trustworthy tax prep companies out there, and you don’t want to waste your time or money on one that is potentially a scam.
Selecting a tax pro and understanding the many forms and vocabulary associated with tax prep might seem daunting, but luckily, many companies make what’s hard feel easy.
Needing to prepare and file a tax return is not a one-time deal, and as your tax situation evolves, so might your needs and requirements that you’re looking for in a tax preparer. The important thing is to know enough about the industry to ensure you don’t get scammed, and reading customer reviews about the top tax prep companies can help you gain confidence in the tax preparer you choose to help you.
The questions answered below should give you a good start when it comes to wrapping your head around tax preparation and what will be required of you vs. what you can hire someone else to do for you. If you have more questions, we suggest consulting with a tax professional from one of our top-ranked tax prep companies.
Chances are, yes. The short answer is that if you have self-employment income over $400 or gross employment income of at least $12,200, you have to file a tax return.
As a rule of thumb, if you are under 65 years old and your gross income is at least $12,200 as a single filer, you have to file a tax return. If you are married and filing jointly, the income requirement to file is $24,400, and if you are filing as a head of household, the income requirement is $18,650.
Bear in mind that if you can claim someone as a dependent, the rules for income requirements change. Plus, regardless of income, many situations still might require you to file a tax return; these are some of the most common:
Even if you don’t have to file a tax return, you still might want to anyway. You might qualify for a tax refund if you had income tax withheld from your pay or qualify for other tax credits. You will only be able to take advantage of this refund if you file a tax return.
Calculating how much you owe in taxes (or how much the IRS owes you, if you have overpaid throughout the course of the year) is tricky, but a certified tax pro or tax software can help you be accurate and timely with filing your tax return.
Some states charge state income tax on top of federal income tax, so depending on where you live, you might owe state taxes that have to be calculated as well. The good news is, if you have done your research and chosen a reliable tax preparer, much of the burden of filing your tax return is alleviated from your shoulders, and you will either receive a tax refund after your federal return is filed, or write a check to the IRS for the amount of taxes you still owe.
Many tax prep software companies like H&R Block, TurboTax, or TaxAct will walk you through doing your taxes on your own from start to finish.
If you want to do your taxes without an online tax software, you’ll want to hire a certified tax preparer like a CPA or EA. These individuals will use their tax expertise to guide you through the process of filing your tax return, often doing much of the work for you and receiving compensation for their time.
If you are a single filer or have an otherwise simple situation without a lot of income or income sources, doing your taxes could take as little as 20–30 minutes if you use a tax software like TurboTax or H&R Block.
Of course, if you own a business, have a lot of income sources, qualify for child tax deductions, or have any number of other circumstances that affect your tax return, the process could take significantly longer. However, if you are hiring someone to do a lot of the tax prep work for you, you will just need to provide him or her with the necessary documents and information, and your own time preparing your taxes will be minimal.
Filing back taxes is not much different than filing your current tax return. The IRS provides resources on its website and a phone number you can call to request the necessary tax forms to file your back taxes.
If you are already working with a tax preparer, you can also ask him or her for help in filing your back taxes.
On a typical year, Tax Day falls on April 15 (or around this date, if it falls on a weekend or holiday). This is the day by which you need to file your taxes.
Due to the Covid-19 pandemic, Tax Day fell on July 15, 2020 and May 17, 2021. However, Tax Day is projected to return to its usual day on April 15, 2022.
According to Forbes, here are a number of common itemized deductions you can usually write off on your taxes:
Others deductions may apply to your individual circumstances, so it’s important that you consult with a certified tax preparer if you think you might qualify for additional deductions.
No. According to Publication 29 from the IRS, as of December 2020, “Tax preparation fees on the return for the year in which you pay them are a miscellaneous itemized deduction and can no longer be deducted.”
There is not a minimum age requirement for filing taxes. Even a young child who has income above the very low thresholds established by the IRS will need to file a tax return.
In fact, the only time when your age might affect your need to file a federal return is when you reach the age of retirement (65). If at this point, your income is below certain low thresholds, you may be exempt from needing to file a return.
Your best bet for filing your taxes online is to use a tax preparation software. The top tax prep softwares are easy to use, walk you through the process, and don’t cost very much at all. Some are even free for basic filing needs.
With a company like Credit Karma Tax, you do not have to pay anything to prepare your taxes if you are filing a simple return. Other companies also offer free plans for basic filing, or paid plans for a fixed, low cost.
If you have a more complicated tax situation, you might have to pay your tax preparer more for his or her time and work required, and these fees could be in the hundreds of dollars.
February 24th, 2020
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