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- You can prepare and file your own taxes online for free if your adjusted gross income is $73,000 or less.
- Paying a professional to do your taxes is an option if your financial circumstances are complicated.
- You should file a return even if you can't afford to pay the tax you owe to avoid additional penalties.
- See Personal Finance Insider's picks for the best tax software »
The prospect of filing a federal tax return can be daunting. And with everything from pandemic stimulus payments to advanced child tax credits potentially complicating things, you may find yourself not even wanting to think about it.
If that's the case, take a deep breath, collect your thoughts, and follow these 5 steps to work your way through the process:
Step 1: Gather the documents and information you need
Depending on how complicated your financial situation is, you might have very few or an overwhelming number of documents to compile. Many will arrive in the mail, including those from your employer or banks where you have interest-bearing accounts, in envelopes clearly marked as tax-related. Others you might have to seek out on your own.
"Be sure to visit all of the websites for your various investment accounts since many providers no longer send paper tax documents," says Kimberly Dula, a certified public accountant in Philadelphia.
Among the most common information and documents you'll need to file your taxes are:
- Personal information like your Social Security number and bank account information to pay any balance due or to deposit any refund
- If you are an employee, Form W-2, which details your income and tax withholdings, among other items
- If you're self-employed, Form 1099-NEC, which details your self-employment income
- Additional 1099 forms, which detail interest, dividends, royalties, pensions, Social Security, and other types of payments not received from your employer
- The letters sent out from the IRS showing how much you received in stimulus and advanced child tax credit payments
- Receipts and other records detailing the amounts paid on deductible items such as mortgage interest, charitable donations, and certain medical expenses
Step 2: Decide how you are going to prepare your taxes
There are three main routes you can take to prepare your return:
Tax-preparation websites or packaged software
Tax-prep websites and packaged software have become increasingly popular. Some are geared toward specific markets, like FreeTaxUSA, for the self-employed, or TaxSlayer for complex cases. Other well-known brands include TurboTax, H&R Block, and TaxAct.
Services range from basic to comprehensive, with costs that start at zero and rise accordingly. H&R Block, for example, offers a basic service for free. Or, you can opt for deluxe at $54.99, premium at $74.99 or self-employed for $114.99. There is an additional fee of $44.99 per state. TurboTax also has a free product, and goes up to $119 for the most expensive option, plus a per-state fee.
After you've picked one, gather your documents and enter all your information. Depending on your circumstances, this could be done in under an hour. This is a good option for more straightforward situations or for people who wish to DIY their tax returns and not pay a professional, says Riley Adams, a certified public accountant and senior financial analyst at Google.
Hiring a tax preparer
Hiring a tax preparer tends to be the most expensive option, but it could pay off if they also can help with tax planning. This can be an enrolled agent (EA), certified public accountant (CPA), or other professional.
While this is the most hands-off method, you still need to take time to review your returns to assure everything has been accurately included. H&R Block, for example, offers a tax pro starting at $69. You can meet in an office or via chat, phone, or video, pass along your documents, and they'll do the rest.
There are also many small, private accounting firms and individuals out there ready to help. The typical firm charges an average fee of $323 for a 1040 itemized and $220 for a 1040 not itemized, according to a report from the National Society of Accountants.
The old-fashioned way — by hand
Although most people these days file their taxes electronically, it isn't required. You can still follow the IRS instructions, fill out the paper forms, and mail them in.
When would it make sense to do that? If you're not really good at math, probably never.
"I would never recommend that someone complete and file their return in paper form," Dula says. "There is too much risk that an error will be made in the various calculations that go into the return."
Step 3. Figure out which credits and deductions you can take
Deductions reduce the amount of your taxable income. You can individually itemize deductions or use the standard deduction.
Standard deductions for the 2022 tax year — claimed by the vast majority of taxpayers — are $25,900 for married couples, $12,950 for single filers and married individuals who file separately, and $19,400 for those who file as a head of a household.
Certain taxpayers can't use the standard deduction, like a married individual filing separately whose spouse itemizes deductions.
The most common itemized deductions include:
- Interest paid on a mortgage
- Charitable donations
- Medical expenses
- Property taxes
- State income taxes
If the total of your itemized deductions amounts to less than the standard deduction, take the standard deduction. If the total exceeds the standard deduction (and doesn't get capped by other tax rules), then itemize. In addition to itemized deductions, you can deduct expenses directly related to your business or rental property.
You may also be able to claim credits such as the child and dependent care credit, the child tax credit or the foreign tax credit. Credits reduce your tax liability dollar for dollar so they are more valuable than deductions.
Step 4. Put it all together and see if you owe tax or are due a refund
If you're using a website or tax-preparation software, it will take you through the process step-by-step, asking a wide range of questions about everything from your income to your marital status and dependents that it uses to find deductions and credits applicable to your situation. Some also offer live tax advisors online for an additional fee.
If you've chosen to hire a professional, they will return to your completed return to you for review before filing. If you've prepared your own returns on paper, double and triple-check the math and make sure you haven't missed any deductions or credits.
Once you've finished, be it on your own or through a professional, you'll discover whether you owe the IRS money or if you overpaid and are due a refund.
5. File your tax return
The last step to filing your tax return is to, well, actually file the tax return.
According to the IRS, the vast majority of the vast majority of individual tax returns are filed electronically. That's also the quickest way to get a refund if you're due one. If you e-file, you'll usually get your refund within a few weeks.
If you do go the hard-copy route, be sure to attach any additional forms and supporting documents required. Don't forget to sign and date your return. And be sure to have the envelope postmarked by the April 18 filing deadline.
If you owe money
If you're unable to pay the tax you owe by your original filing due date, the balance is subject to interest and a monthly late payment penalty. There's also a penalty for failure to file a tax return. So file on time, even if you can't cover your balance in full, to avoid having to pay that.
The IRS accepts payment electronically, by phone or from a mobile device (check out the IRS2Go app) through IRS Direct Pay.
If you decide to pay by mail, send a check or money order payable to "United States Treasury" with your payment voucher. Be sure to include the Social Security number for the first taxpayer listed on the return as well as the tax year and form in the memo section. If you can't pay in full, you should pay as much as possible to reduce the accrual of interest. You can also apply for an installment plan through the IRS website and have your payments debited directly from your bank account, withheld through a payroll deduction, or paid by credit card.
If you're due a refund
If you've filed electronically and provided your bank account information, the IRS will send the refund directly to your account. You may also request a physical check be mailed instead. But that could take much longer. And there's always the possibility it could get lost in the mail. If it's been a while and you haven't received anything, you can also contact the IRS about your refund.