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How Should I Do My Taxes?
How Should I Do My Taxes?
How to Choose a Filing Method
December 2020 * 7 min read

Tax season is upon us, and for many taxpayers, that means it’s time to decide how they’re going to prepare their tax return this year. If you’re interested in saving time or money on tax filing, now is a good time to look at all of your options and choose the best one for your situation.

You generally have three main methods to choose from: 1) E-filing your taxes online using a software or website, 2) hiring someone to do your taxes for you, and 3) doing your taxes by hand, using IRS tax forms.

1. Preparing and e-filing your own tax return

This option involves filing your taxes using a software or website that guides you through filling out a tax return, usually by breaking each line of your tax return down into a simple “interview question” that’s easy to understand. “Did you have business income in 2020?” and “How much did you spend this year on medical expenses?” are examples of questions you’ll need to answer. Most of these tools will have knowledge bases where you can find answers to your questions, as well as customer support teams that can help you troubleshoot any technical issues that come up.

These tools will also automatically take any tax credits and deductions that it finds you eligible for—such as the Earned Income Tax Credit or the Child and Dependent Care Credit—so that you don’t miss out on any important tax breaks.

Your tax software options: There are tons of online tax softwares available, all with varying levels of guidance built into the experience. Some will have only brief descriptions of how to answer each question, whereas others will have suggestions for you based on how you’ve answered previous questions.

How much you’ll spend: Your costs can vary from $0, all the way up to $150+. Some online tax filing tools are completely free for any type of tax return. Most paid tools will also usually offer a free version that’s open to people with the simplest tax returns—especially those that have only one type of income, take the standard deduction, and don’t require additional forms beyond the Form 1040.

However, if you’re self-employed and using a paid tax filing software, you’ll likely be required to choose one of the premium versions of that software in order to be able to file a Schedule C.

When to choose this option: If you’re looking for a more affordable option, or if your tax records are already organized, then this is a great choice for you. Found users—that means you! Your Found app has a complete record of your business income and expenses, as well as a pre-filled Schedule C that you can reference, which will make the filing process much simpler and shorter.

2. Hiring someone to file for you

This option involves finding a registered tax preparer to prepare your tax return for you. They’ll request that you share documentation on your income, expenses, dependents, past tax filings, and other relevant information, and they’ll use that to prepare your entire tax return on your behalf—usually with very minimal time needed from you. They’ll also officially sign off on your prepared tax return, which means they’ll be partially responsible for handling any questions or disputes from the IRS.

If you’re willing to spend more in exchange for 1) saving time on tax preparation, and 2) gaining access to a preparer’s tax expertise, then this is the option for you. About half of all taxpayers will hire someone else to file their taxes for them.

Your tax preparer options: You can either use an independent tax preparer or accountant, or you can use a tax preparation company that offers in-person preparation services. If you’d like to work with an independent preparer or accountant, you can search on the IRS website for credentialed preparers in your area. If you use a larger tax preparation service, you can book an appointment on the website of any tax preparation company.

How much you’ll spend: According to a survey by the National Society of Accountants, the average range for tax filing services by a tax professional is $176 - $457 per tax return. Pricing will depend on a few factors, including your preparer’s hourly rate, the complexity of your tax situation, and your location. Many preparers will charge you based on a minimum filing fee, an hourly rate, and additional fees for specific forms or tax situations. For example, your preparer may charge an extra fee if you’ll need to file a Schedule C.

If you find a tax preparer with a tax preparation company, however, you’ll likely find a lower price (in the range of $50 - $400).

Note: Whether you use a tax prep company, or an independent tax preparer, self-employed taxpayers will likely pay the higher end of that price range. Reporting multiple income sources and filing extra forms like Schedule Cs can drive up the price of your return.

When to choose this option: This is a good option for people willing to spend a bit more for the peace of mind of having a tax expert prepare your tax return for you, especially if you have a more complex return. If your return involves itemizing deductions, multiple types of income, or lots of unorganized receipts and documentation that you don’t have time to go through—and if you’re not feeling confident about filing on your own—this option is for you.

Pro-tip: If your income is below a certain threshold, you can qualify for free tax preparation through certain tax prep nonprofits or government agencies. The IRS’ VITA program, which offers free federal tax filing, is available to anyone with an Adjusted Gross Income of $57,000 or below, persons with disabilities, or limited English-speaking taxpayers. There are also local tax preparation nonprofits that will offer similar services. You can search for free tax help in your area here!

3. Filing by hand

You also have the option of filling out your tax forms without the help of a software or a tax preparer. This option involves downloading a blank copy of the Form 1040, filling it out by hand (along with any other forms that it indicates you need to submit, like a Schedule C), and submitting your forms and payment on your own.

How much you’ll spend: Well, this option will be completely free. Tax forms are free to download directly from the IRS website, and the IRS also offers some free payment methods if you end up owing taxes.

When to choose this option: If you’re a pro at taxes, or get a kick out of doing everything yourself, then this is the option for you. You’ll also need to use this option if you want to submit your tax return before the IRS starts accepting e-filed returns in late January.

We don’t recommend taking on this option lightly; if you file completely on your own, you’ll miss out on even the most minimal level of guidance from a free tax filing software. If you’re choosing this option to save money, consider using a free filing software or looking for free tax prep assistance in your area. If you do end up doing your taxes by hand, then you can reference the pre-filled Schedule C in your Found app to breeze through reporting your business income.

To recap, here’s how we recommend choosing a filing method:

  • Do your own taxes online if you’ve kept your tax records organized (especially using Found!) and you feel confident answering or researching basic tax questions. This is the most cost effective option for you!
  • Hire someone to file for you if you’re willing to pay more money in exchange for an expert’s opinion—or if you’re simply too busy running your business to do your own taxes.
  • Do your taxes by hand If you really want to file your taxes before the IRS starts accepting e-filed returns in late January, or are a tax pro who likes the challenge of preparing your tax return without guidance.

Tips to keep in mind when preparing your tax return

Choosing a tax filing method can be intimidating; there are a ton of options out there, and it’s tough to know if you’re getting the biggest bang for your buck. Here are some tips to keep in mind throughout the decision-making process, as well as when you’re filing:

  • Do your research on available discounts. - You can often save up to 30% on tax filing if you can find a promo code for a tax preparation company. You can often find discounts through your bank or credit card company, as well as by searching online. Even just signing up for an account with a tax preparation site can earn you a promo code.
  • Don’t forget that your time is valuable. If you’re on the fence between hiring someone and doing it yourself, and you know that you’ll be very busy with your business at the time you’d like to file, it could be worth going for the more expensive option in order to save time.
  • If you get stuck - utilize all of your resources! Even if you’re filing by yourself, you’re not alone! Most tax softwares have fantastic Help Centers and support teams that can answer questions for you. They’ll also have community forums where you can post questions and get answers from people in the same boat. And if you use Found, don’t forget you have a team of tax experts on the other end of our help@found.app email address. Just because you have business income doesn’t mean you have to pay more for tax preparation!
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