Your Tax Filing Options and the Cost to File Taxes
Not sure how to file your taxes this year? You’re not alone! When you have self-employment income, it can be tricky to decide which option to choose and to evaluate how much it might cost to file taxes.
There are a ton of tax filing options available to you; from shelling out for an accountant to filing alone with a filing software, each of these options have their own pros, cons, and unique costs. Here at Stride, we recommend every self-employed person take some time to research their options. Today we are going to save you some time! Here’s all the important information you need to know to evaluate your options, select the best filing method, and not overpay.
The Expert Method: Accountants or Tax Return Preparers
The basics: You hire a tax preparer who files for you
Price: Between $200-500 (on average)
Time you’ll spend: Usually <2 hours
Good option for: Any situation, but best for complicated tax returns, or people who are really nervous about tax filing
Did you have multiple types of income, own a home, incur high medical costs, have tons of deductions, experience a major life change, manage an inventory, or have any tax filing situation that requires extensive bookkeeping throughout the year? These tax filing situations usually indicate you’ll need to file a few extra forms along with your typical Form 1040, making your tax return a bit more complicated!
If you know you have a complicated tax return and are willing to spend a little extra for a tax preparer or CPA, then it’s probably worth it to pay for a tax preparer. You’ll also get some peace of mind knowing that a professional is helping you out, not to mention some extra time back that you would’ve spent filing your taxes on your own.
The major upside of hiring a tax return preparer is that it requires very minimal effort on your part. You will simply need to pass your information and documentation onto your accountant and let them do the work. With that said, it is a little more costly to work with an accountant, but can save you a massive headache!
Pro tip: Tax preparers become less available towards the end of tax season, since so many people wait until late March or April to file their taxes. Be sure to make your appointment early!
The Online Method: Tax Filing Softwares
The basics: You purchase software that guides you through filing
Price: Anywhere from $0-100+
Time you’ll spend: 1-4 hours, depending on how many supplemental forms are required
Good option for: Easy or moderately complex returns, or people who like managing their own finances
Even if you’ve never filed your taxes on your own before, a tax filing software can almost always walk you through your tax return in a way that makes the entire process much easier than you’d think. All you’ll have to do is answer a series of “interview” questions about your tax filing situation.
If the questions like the ones below seem manageable to you, then you’re probably well-equipped to handle tax filing on your own.
“How much money did you get from 1099s this year?”
“How much did you have in vehicle expenses for your business?”
“Are you married, and if so, are you filing jointly?”
“Do you want to claim dependents, and what are their Social Security Numbers?”
Softwares can also give you recommendations based on the information that you provide. For example, you won’t have to decide for yourself if you should take the standard deduction or itemize your deductions; a tax filing software will look at the tax information you’ve entered, and decide for you.
There are a few major pros of using a tax filing software: you have tons options to choose from, you can work on filing whenever you have time and save your work as you go, and if you ever get stuck, most filing softwares have an online tax center or a dedicated support team to answer your questions. However, keep in mind that you still have to do much of the work on your own.
The Old School Method: Paper Filing
The basics: You file by filling out paper forms
Time you’ll spend: 4-6 hours, depending on how familiar you are with filing taxes by hand and without assistance + how complicated your tax situation is
Good option for: Very simple tax situations, or expert tax filers
Filing your taxes by hand can be quite complicated, especially when you are self-employed. If you are considering preparing a paper return, but aren’t a tax code nerd, make sure you have a super simple tax situation on your hands. If you answer “yes” to the questions below, you might be in a good position to filing your taxes by hand.
Do you only have one 1099?
Do you have very few deductions?
Do you have no dependents?
Do you qualify for very few tax credits?
Did you not experience any major life changes (from a tax perspective) in 2018?
Pro tip: If you are only filing by hand on your own to save money, be sure to check if you qualify for a free tax filing program!
Free Tax Filing Programs
The basics: You receive free assistance with filing your taxes (your income must qualify you)
Time you’ll spend: 1-3 hours
Good option for: Those with income under $55,000 per year, those with disabilities, and those who speak limited English
There are a number of free tax preparation nonprofits that will help you at no charge, depending on your income.
If you’re in need of assistance with paying your tax bill or resolving any tax disputes with the IRS, you can also get free or low-cost assistance via the Taxpayer Advocate Service.
Your Cheat Sheet
That was a lot of information, and you are probably wondering what option is best for your filing situation. Check out Stride’s cheat sheet below that includes all the details you need to make a smart decision!