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How to save on tax preparation

Why your 1040 should cost less this year.

By Karen Datko Mar 1, 2010 11:11AM

This Deal of the Day comes from Kelli B. Grant at partner site SmartMoney.

 

This year’s tax-preparation fees are next year’s deductible expense, but competition among preparers may allow you to keep more money in your pocket.

 

Tax-preparation services face a lean market this spring. Last year’s economic woes have spurred more consumers to fill out their Form 1040 solo, says Vishnu Lekraj, an equity analyst covering the industry for Morningstar. Most taxpayers are simply unwilling or unable to spend the $100 or more it takes to get help, he says. H&R Block reported in late February that the number of returns in its bricks-and-mortar stores was down 8.2% this year, and software returns were down 7.6%.

With fewer returns to go around, taxpayers who want preparation help have leverage to negotiate. But you'll also need to be wary of providers whose prices are deceptively low. Whether you’re interested in software, online services or a flesh-and-blood preparer, try these strategies to get a good deal:

 

Get organized. Preparers base rates on how complicated your return is likely to be, and part of that is recordkeeping. Show up for your appointment with carefully organized records rather than a shoebox of receipts, and you'll pay less, says Melissa Labant, technical manager for the American Institute of Certified Public Accountants.

 

Hunt for coupon codes. Check out the long list of tax discounts at coupon sites including CouponShack.com and Savings.com. Jackson Hewitt offers a printout coupon good for 20% off through the end of the year. Link through to H&R Block from one of the sites, and you'll save 15% on online prep. However, you might want to wait until it gets closer to April 15 for a bigger discount, as preparers get more eager to snag last-minute business, says Sok Verdery, chief executive of CouponShack.com.

 

Some reward sites are also offering cash back when you link to the preparer through their site. Ebates.com, for example, offers 25% back at OnePriceTaxes.com, 15% at Complete Taxes and 11% at H&R Block.

 

Don’t buy refund promises. Be wary of any preparer or tool that promises a bigger refund than the competition. “There’s no way they can guarantee something like that,” says Allison Southwick, a spokeswoman for the Better Business Bureau. It’s a good sign the preparer isn’t on the up-and-up, regardless of the price.

 

Reassess your finances. The simpler your return, the less you'll pay. Taxpayers who plan to use the same preparer as in previous years should consider how their tax situation has changed, Labant says. If the recession has made your 2009 return decidedly less complicated -- say, you won't itemize deductions or didn't sell any investments -- point that out so they can adjust the estimate accordingly.

 

Check for freebies. High unemployment and pay cuts have made more consumers eligible for free tax preparation this year. Before you pay, check to see if you qualify for free help.

  • Free File from the IRS offers free tax-preparation software and electronic filing to taxpayers whose adjusted gross income is $57,000 or less.
  • AARP Tax-Aid, a partnership between the IRS and AARP, prepares basic Form 1040 returns for consumers age 60 and older as well as low- and moderate-income consumers of any age. You do not need to be an AARP member. There's no set income cutoff, but most participants are eligible for the Earned Income Tax Credit, says Bonnie Speedy, the Tax-Aid national director. (For 2009, that's a maximum income of $48,279 for a couple filing jointly with three or more children.) 
  • Volunteer Income Tax Assistance helps low- to moderate-income consumers (those eligible for the earned income credit) prepare returns. To locate the nearest VITA site, call the IRS at (800) 829-1040 or conduct an Internet search for "VITA" and your state name.

Read reviews. The most common consumer complaint to the BBB about preparation services is errors in the return, Southwick says. Spending less on the fee isn’t true savings if a mistake results in paying penalties to the IRS later. Before you hand over your W2 and other materials, check out reports at BBB.org as well as reviews on sites including ConsumerSearch.com and Epinions.com.

 

Put away the plastic. Pay your tax bill by mailing a check. Federal law prohibits the IRS from paying credit card issuers' processing fees -- which means that nondeductible cost gets tacked on to your bill. It could add as much as 4% extra.

 

Related reading at SmartMoney:

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