Editorial Policy

Don’t go into debt paying for tax prep

Allie Johnson

February 29, 2016

Some people go into debt at tax time paying hundreds of dollars for tax preparation services — whether they will be getting a refund or paying Uncle Sam. There are alternatives: Shop around for a less expensive tax preparer, do your taxes online or get free tax prep help.

If you plan to hire a pro, price “varies wildly,” says Michael Best, senior policy advocate for the Consumer Federation of America (CFA).

In fact, the U.S. Government Accountability Office in 2014 sent mystery shoppers to 19 tax preparers and found that one sample consumer received quotes ranging from $160 to $408 for a simple tax return, while another received quotes ranging from $300 to $587 for a slightly more complex one.

Consumer groups that sent mystery shoppers to tax prep companies found some charge as much as $500 for a simple return, according to a January 2016 report by the CFA.

“That’s just ridiculous,” Linda Sherry, director of national priorities for Consumer Action, says of companies that charge exorbitant tax prep fees.

Pay by the hour or by the tax form?
A good tax preparer should charge by the hour, but should also be willing to give you an estimate of how long your taxes will take, says Kelley Long, a CPA and financial wellness expert who has prepared taxes in the past.

Avoid tax preparers who charge by the form, which can inflate tax prep fees, she says. “There are all kinds of forms you can file but don’t have to,” she says.

“There’s a whole slew of free tax services.”
— Michael Best,
senior policy advocate,
Consumer Federation
of America

The CFA report found that 9 out of 10 of Americans think tax preparers should have to give customers a printed list of prices before doing any work. The report calls tax preparation a “rare industry where prices are often not given upfront before the work is done.”

Sherry adds that some tax preparers also lure consumers into shelling out even more money for expensive short-term loans of tax refunds or tax preparation fees.

So, it’s smart to quiz a tax preparer ahead of time about how much they charge, Best says. “Try to get something in writing,” he says.

Cheap or free tax prep options
If you’d rather avoid the hassle of price shopping and you a simple return, you have several options for getting your taxes done affordably, Sherry says. For example:

1. File online for free. If you make less than $62,000 a year, you can use the Free File tax software from the IRS. If your income is higher, you can use free online versions of paper IRS forms. However, that can be tricky for people who don’t know how to do their own taxes, Sherry says. As an alternative, some large tax preparation companies, including H&R Block and Jackson Hewitt, offer free online filing for EZ federal and state tax returns.

2. Use tax prep software. Tax prep software can be more affordable than paying a preparer, Sherry says. According to a PC Magazine roundup of the best 2016 tax prep software, prices range from $13 to $35 for federal taxes, with an additional cost for state taxes. Turbo Tax, for example, charges about $35 for federal, and about $37 for state.

3. Get free help in person. If you meet income or age requirements, you can get free, in-person tax prep help, Best says. If you make $54,000 or less, have a disability or speak limited English, you may be able to get help through the Volunteer Income Tax Assistance program. If you’re 60 or older, you can use the Tax Counseling for the Elderly program. These programs use only qualified tax preparers who have been tested by the IRS, Best says. Check the IRS website to find tax help near you. The AARP also offers free tax help for low- to moderate-income taxpayers, especially those over 60. “There’s a whole slew of free tax services,” Best says.

If you’re anxious about taking a more hands-on approach to tax prep, dig up last year’s return to use as a model, Sherry says. “You should be able to follow along.”

Still want to hire a tax preparer? Choose wisely.
If you’d rather hire a pro, you should check not only price but also make sure your preparer is qualified. Only four states — California, Maryland, New York and Oregon — regulate tax preparers, according to the CFA report.

In most states, preparers don’t need to have passed a test or show that they’re competent to do taxes. “Anyone could hang out a shingle and do this,” Best says

Find a credentialed tax preparer by checking the IRS directory of tax pros. Look for a preparer who’s a CPA or an enrolled agent, Long recommends.

And steer clear of any preparers who promise you a certain refund total or tie their tax prep fee to the amount of your refund, the IRS warns. “That’s fraud, and it’s illegal,” Long says.

Once you’ve found a good preparer, ask what you can do to cut the amount of time your return takes so you can minimize your tax prep cost, Long says.

For example, a good preparer will send you a tax organizer, Long says. Fill it out and put the required documents in the right spot — not stuffed in an envelope that your preparer has to sort through while on the clock, she says. And if your preparer works online, scan your supporting documents and save them on a thumb drive rather than printing out a pile of papers.

“You should be able to save an hour or two of charges that way,” Long says.

SEE ALSO: Not all forgiven debt is forgotten at tax time, Paying taxes with credit cards: Convenient but costly

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