When BlackEnterprise.com recently polled readers about who will prepare their taxes this year, a majority of respondents said they would self-prepare.
“I think in some cases people just want to save some money, and they are giving it a try themselves,â€ says Rolando Palacios, director of tax services at the Center for Economic Progress. That may be the case considering that the average tax preparation fee can range from $129 to $229 for the federal 1040 and a state tax return, depending on whether or not deductions are itemized.
More than 132 million tax returns were filed by April 24, 2009, and 31.2 million returns were filed electronically by home computers, according to the IRS. E-filing, which allows taxpayers to electronically file returns using IRS approved tax preparation software from any internet ready computer, increased 19.3% since the 2008 filing season. E-filing is cheaper for the IRS, and it is safer for the taxpayer because it reduces errors, according to an IRS spokesperson.
Increased availability to free electronic tax software might have something to do with the increase in self-prepared returns. Taxpayers with adjusted gross incomes of up to $57,000 can use the IRS’s standard Free File options this year, which equals about 70% of all taxpayers.
Thirty-one percent of BlackEnterprise.com respondents said they are going to hire a certified public accountant to prepare their taxes, 6.3% plan to have a friend or relative do their taxes, and 8.3% chose “other.â€
Even still, preparing taxes on your own isn’t easy. Due to the American Recovery and Reinvestment Act there are an abundance of new tax credits, refunds, and deductions which will make doing taxes more difficult. They range from credits for parents of college students and new car buyers to first-time homebuyers and green credits for homeowners that remodeled their houses with eco-friendly building materials and appliances.
“I think it is challenging for somebody who isn’t a professional to do their own taxes; even someone who is well educated and think they know what they are doing,â€ says Palacios.
About 13% of respondents to the poll said they planned to visit store-front tax preparation businesses like H &R Block or Jackson Hewitt. Many low-income consumers turn to them because they are conveniently located and because the refunds are immediate, says Chris Long, a certified financial planner and president of Chicago-based Long & Associates LLC. Yet, he says people should shy away from refund anticipation loans at these places, because you have to agree to pay them from your refund causing you to owe them a fee plus interest, if you don’t receive a refund.
“The loan is appealing to a lot of people because they might have bills to pay or unemployment in their household and they are really counting on this money [immediately],â€ he says. Fortunately, with Free File and through programs like the Volunteer Income Tax Assistance program that offer free tax preparation, there is no need for the majority of taxpayers to patronize their services.
The results are in:
Who will prepare your taxes this year?
–A certified public accountant 31.3%
–H&R Block or other storefront tax preparer 12.5%
–A friend/relative 6.3%
BlackEnterprise.com conducted the poll between Feb. 8 and Feb. 22.