Do-it-yourself tax-preparation programs cover a broad field of services and functions. With prices ranging from zero to $130 and higher, tax packages include programs for simple returns and for tax filers who own small businesses and investment portfolios.
“Just make sure you select the right product and the right version of the product,” said Bob Meighan, vice president-TurboTax. Here are seven tips for getting the most from tax preparation programs:
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1. Update the box
Surprise! Straight from the box, even the newest tax software may be outdated. That’s because tax programs are typically shipped in late November or early December, but Congress could issue last-minute changes to the tax code after the software shipping dates. That happened this season, when new federal tax legislation was passed in mid-December after most tax programs arrived on store shelves. For that reason, it’s important to download program updates before you start inputting data and making computations, Meighan said. Most tax programs, he pointed out, provide onscreen reminders and prompts about downloading updates.
2. Take out the garbage
The old cliché about data is true: Garbage in; garbage out. The strength of your tax return depends on the quality of information you type into the program. Maximize a program’s effectiveness by reading directions carefully. Provide accurate and complete answers for the preliminary “interview” section of the program, Meighan said. Incorrect and incomplete answers could work against you and result in a larger-than-anticipated tax bill, a smaller refund or a tax audit from the Internal Revenue Service.
The tax laws change every year. Ignorance of the law can be expensive. “You could miss out on money,” said Elaine Smith, a tax advisor at H&R Block. Find out if you qualify for different deductions based on improvements to your home or major changes in your life. For example, taxpayers who support children and elderly parents might be eligible for the “qualifying relative exemption,” a deduction of up to $3,650 in expenses for medical care, education, food and housing costs. To find out if you qualify for different deductions, check out the “Am I Eligible” tool and other online resources at IRS.gov.
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4. Get help
Tax software packages are bundled with access to multi-media support, including videos, blogs, articles, live telephone support and chat rooms. TurboTax has an extensive library of short online videos. Titles include “Deducting Charitable Contributions,” “Deducting Mortgage Interest and Property Tax” and “Tax Tips for the Self Employed.” H&R Block features a tax blog called “On the Ledger,” which is written by Leigh Mutert, a CPA.
Recent topics have included posts about claiming dependents, information about filing out a W-4 form and updates for unemployed tax filers. With its tax preparation software, Jackson Hewitt offers a pull-down menu with industry specific information based on job title. “If you work in an office as a secretary, administrative assistant, or accounting or data entry clerk, you should receive Form W-2, Wage and Tax Statement, from your employer,” according to the job-specific tool, which provides detailed information about tax deductions and credits, for “job-related expenses.”
5. Consider defaulting
Based on your financial profile, tax programs provide default options for different tax credits and deductions. Selecting default options could be in your best interest. For example, after you have itemized education expenses and entered the necessary data, the program might tell you that you’re better off with standard deductions. “Accept the program defaults, they’ll be generally right,” Meighan said.
Always review your tax return prior to filing. Check income figures and deductions for accuracy. You are responsible for the accuracy of your return, even if you use a tax program or hire an accountant.
7. Go green
File your taxes electronically. In 2010, 34.8 million tax payers filed their own taxes electronically, up from 32.8 million in 2009, a 12-month gain of 8.2 percent in electronic do-it-yourself tax preparation, according to federal data. Logic backs that growth. Electronic filing eliminates the hassles of printing and shipping documents. What’s more, you can get your refund check in 8-12 days. “And it’s green for the environment,” Meighan said.
Sharon Harvey-Rosenberg is a member of Wise Bread’s top personal finance blog network. She is the author of "Frugal Duchess: How to Live Well and Save Money” and a contributing author to ”10,001 Ways to Live Large on a Small Budget.”