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Section 2 SP 15, Spring 2015

Tax filing: Should you do it yourself online or use a professional?

Carmen Arzate is an undergraduate student who started doing her taxes on her own two years ago, when her parents could no longer claim her as a dependent.

Arzate works on filing her taxes. She said she will use TurboTax again next year because it offers her everything she needs.

Arzate works on filing her taxes. She said she will use TurboTax again next year because it offers her everything she needs.

After researching a few of the most popular online tax preparers and asking her friends what they prefer, she decided to use TurboTax.

Arzate admitted to being nervous the first time she did her taxes because of her fear of numbers. But she quickly overcame her anxiety.

“If I can do it, anyone can do it,” Arzate said.

Between working three part-time jobs and attending college, the 23-year-old student said she appreciates doing her taxes on her own because of how inexpensive it is.

“I’m a student. I can’t afford to pay someone to do my taxes,” Arzate said.

She is not alone.

Due to ease and affordability, more and more taxpayers are deciding to self-file their taxes.

VIDEO: JMS Reports interviewed people in the Gaslamp District two days before the filing deadline. The responses were almost evenly split between doing it yourself and seeing a professional.

Online makes it simple 

Last year, more than 45 million people prepared and electronically filed their own returns, an increase of 4.6 percent, according to the Internal Revenue Service official website.

Guided step-by-step instructions on programs such as TurboTax, TaxACT and ezTaxReturn are one of the reasons for the increase in do-it-yourself filing.

TurboTax’s official Twitter account informs customers about their new app. The app allows users to file taxes anywhere from a cell phone or tablet computer.

TurboTax’s official Twitter account informs customers about their new app. The app allows users to file taxes anywhere from a cell phone or tablet computer.

“I need it to be broken down for me,” Arzate said.

Arzate said she likes TurboTax because it gives her detailed explanations about each section of her tax return.

H&R Block also offers a software program that has links throughout each page which answers questions about which deductions qualify.

TurboTax, H&R Block and Jackson Hewitt all allow people to upload information from their W-2 forms, instead of loading data individually.

Ted Considine, a certified public accountant who owns his own practice, said for some people doing taxes online is a better option.

According to Considine, a taxpayer should be able to file on their own if they make less than $60,000 dollars a year, does not claim any dependents and does not own any property or investments.

“As long as someone is confident and knowledgeable about taxes and technology,” Considine said. “There is no reason not to file your own returns.”

If a taxpayer owns their own business, got divorced, married or had a child in the past year, it is best to hire a professional, Considine said.

SLIDESHOW: Vincent Winter files his taxes through H&R Block the day before the deadline. Winter reads through the questions before filling out each section.

Simpler is not always better

Some accountants warn that because these programs are so simple, users do them in a rush.

Michael Koda, a full-time restaurant manager and part-time H&R Block associate, said people still make mistakes on simple returns.

People could also be missing out on some refunds.

“Absolutely. People have to be missing out,” said Stephen Blum, a finance professor at San Diego State University. “Money is lost.”

Koda said he often finds money people were unable to find.

Koda helps a man with his taxes. The man is a bartender and needs help making sure his tips are declared correctly so he is not audited.  Photo by Amber Bjorstrom

Koda helps a man with his taxes. The man is a bartender and needs help making sure his tips are declared correctly so he is not audited.
Photo by Amber Bjorstrom

After his employees found out he became certified to prepare taxes, they brought him old tax returns to look over.

“A couple of them thought they might be able to get more money back,” Koda said. “They were right, but it was too late.”

People generally do not want to sit around and read the tax code for credits and deductions. Even if they do, they need to know how to apply it, Koda said.

“The government doesn’t want to throw money at you,” Koda said. “So they make it ‘not so obvious.’”

Considine agrees and says he has clients who come to him after trying to file their own return.

“I’ve seen many different cases,” Considine said.

Although the people he sees who file their own returns usually have simple W-2’s, he still gets clients in his office to check their attempts. Others are unhappy with the end result and are looking for a way to get a larger refund.

Affordability is key

Some of the largest online do-it-yourself tax preparation service companies are: TurboTax, H&R Block and TaxACT.

The cost for each depends on the complexity of the return. Companies use various edition packages to determine the prices.

TaxGraph

A price comparison for the most common editions among TurboTax, H&R Block and TaxACT. All TurboTax and H&R Block editions are more expensive than TaxACT.

 

All three companies united with the IRS and Free File Alliance to provide free federal filing. Free File Alliance is a nonprofit partnership of the top tax preparation services.

The federal free editions are for basic 1040EZ/1040A returns. State returns vary depending on which state you live in.

Screen Shot 2015-05-04 at 1.43.13 PM

TaxACT offers an Ultimate Bundle option. It includes the deluxe edition plus a state return. It has many of the other common features such as, stock imports, charitable donation imports and deduction assessors.

Hiring help may put you at ease

Tax professionals are far from extinct, though. Despite technological improvements, according to the IRS, a preparer files almost 60 percent of individual returns.

Many circumstances send taxpayers to get professional help. Some people do not have a choice. Owning property, having a baby and getting married are all examples of reasons people might seek professional assistance to avoid common penalties.

Blum said H&R Block does a pretty good job with preparing taxes. They also offer tax courses and internships for college students who wish to be in the field.

Some taxpayers are hesitant to pay for tax help because the price is double or triple compared to doing them on their own.

Taxpayers interested in hiring a professional to complete their 2014 tax return can expect to pay an average of $273, according to a survey by the National Society of Accountants. But the cost could be as high as $500 an hour.AccountantvsTax

Caitlin Clark, 26, was an online tax filer until she got a new job last year and started making more money.

Clark decided to open up a Roth IRA, a tax-qualified savings account that allows her to put money towards retirement.

The additional paperwork and financial statements were confusing to her and she did not want to risk getting penalized.

Clark said she went from paying $40 when she did her own taxes, to now paying a little over $100 for an H&R Block associate to file them.

“The price difference does not matter to me,” Clark said. “Getting them done professionally gives me a better peace of mind.”

Watch out for tax scams

Taxpayers can be victims of identify theft, false money promises and return preparer fraud, whether they file on their own or with a professional.

“The biggest problem today is tax fraud,” Blum said. “People are filing other people’s returns and refunds.”

The IRS releases a list every year of annual tax scams, reminding taxpayers to be cautious during tax season. The information they provide can be used for identity theft.

Tax fraud through the use of identify theft tops the IRS list this year. It usually occurs when someone uses a social security number or name to file a tax return and claim a refund.

Tips from the IRS to protect your identity online

  •      Use firewalls and anti-spam/virus software on personal computer.
  •      Change your passwords often.
  •      Secure personal information in your home.
  •      Don’t carry your Social Security card or documents with your Social Security number.

The FBI is currently investigating cases of fraudulent returns filed from TurboTax. Some states reported a higher number of people attempting to steal refunds. Intuit, the San Diego-based owner of TurboTax, released a statement saying the personal information was not obtained from their system.

“We want to assure our customers and taxpayers generally that TurboTax is safe and secure, and we’ve taken every necessary and appropriate action to safeguard customers’ information,” said Julie Miller, a spokesperson for Intuit.

Blum warns that anyone can be a victim of identity theft, even if they paid to get their taxes professionally prepared.

“All you need is a social security number,” Blum said. “It would not be that hard for me to get your social security number right now.”

Blum says taxpayers need to know who they are taking their taxes to because there is a big difference between accountants and tax preparers.

Considine said he recently met with three people from the same office whose tax preparer fraudulently prepared their returns. The office’s clients are now being audited for 2012 and 2013.

“There are many unlicensed tax preparers who are damaging the industry,” Considine said.

So, who can taxpayers trust?

Do the research.

If you have had a trustworthy family accountant for years, stick with that person.

If you are unable to afford an account and prefer to do things on your own, don’t be afraid to ask questions. All tax preparation services have 24/7 hotlines and customer support.

The IRS recommends doing taxes early in case any problems arise.

“In the end, what’s best for each person really depends on the complexity of your return,” Koda said.

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