How to Save on Tax Preparation

Those who don't qualify for free tax software have other free or low-cost options.

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The Internal Revenue Service opened the 2012 electronic tax return filing season on January 17. It can cost hundreds of dollars to have your taxes prepared for you, but if you would like to reduce the cost of tax preparation, you have several options. The majority of taxpayers can use free tax software to prepare and e-file their taxes for free. Those who don't qualify have other free or low-cost options.

[See 50 Ways to Improve Your Finances in 2012.]

The IRS has a Free File mini site with information on free filing options. Free File is a free, federal income tax prep and electronic filing program for eligible taxpayers, developed through a partnership between the IRS and the Free File Alliance, a group of private-sector tax software companies.

The Free File program is open only to taxpayers with a 2011 adjusted gross income of $57,000 or less. About 70 percent of taxpayers have an AGI of $57,000 or less, meaning most taxpayers can use the free file program. If you qualify, you can use the IRS Free File wizard for help choosing a free file company.

[See 3 Tax Apps That Save Time and Cash.]

Even if your AGI is above the limit, there are online tax companies that allow you to e-file your federal tax return for free regardless of your income. They are usually able to do this because they charge to file your state tax return. Whether you qualify for Free File or not, you need to consider the cost of your state tax return because there usually is a charge to file it. Of course, if you are from a state with no income tax,  you do not need to worry about this.

Another option for free e-file is the Free File Fillable Forms. These forms are similar to doing a paper return but they are online, and when you are finished you can e-file your return for free. The drawback to this option is that you need to understand how to prepare your return and it does not include a state option.

[See How to Get the Saver's Credit.]

If none of the free filing options work for you, then you need to find a tax preparer. An online search can give you an idea of how much preparing a tax return should cost, but the cost will vary considerably depending on the complexity of your return. If you do have your tax return prepared professionally, avoid getting a refund anticipation loan or refund anticipation check because those options are extremely expensive.

They are not necessary because you can get your refund in a little over a week if you e-file and have your refund direct deposited. You shouldn't just go with the cheapest preparer, though--you should check out their qualifications. An incorrect tax return could cost you thousands and make the few bucks you saved going with a cheaper tax preparer look like chump change.

Doing your taxes is not a pleasant task, but not having to pay to have your taxes prepared makes the task a little more palatable.

Andy Hough writes about frugality and living well on a small income at TightFistedMiser.com.

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