If you do your taxes yourself, you’re in the minority, according to Consumer Reports Money Adviser. The IRS estimates that about 60 percent of taxpayers used a preparer last year.
Do-it-yourselfers can take advantage of many online tax-prep tools that offer free trials — just type “tax-prep software” into a search engine to find them. You can prepare your federal return free on a secure server and pay nothing until you file. In addition, several online tools, including TurboTax, H&R Block at Home and TaxAct, offer basic versions for simple returns that are free to prepare and file, regardless of your income.
The IRS offers its own free “fillable form” for folks who don’t need prompting from tax software. And there’s FreeFile, accessible at www.irs.gov, which offers federal tax prep and filing for people with $57,000 or less in adjusted gross income or who meet other criteria.
But even if you use a tax pro, Consumer Reports Money Adviser points out that you can save money by doing some of the work yourself. One way is to complete the tax organizer many preparers give their clients at the beginning of the season.
The following online tools can help as well.
— Value and tally donations. A TurboTax feature, ItsDeductible, is free online whether you use the software to prepare your taxes or not. It’s available year-round, at turbotax.intuit.com/personal-taxes/itsdeductible/index.jsp. Its competitor, H&R Block’s DeductionPro, is also free year-round, at www.deductionpro.com/
dpro/Welcome.jsp. Both use data from independent sources to value donated goods and let you tally contributions and charitable mileage. In Consumer Reports Money Adviser’s recent test, DeductionPro was more convenient.
— Find out a charity’s tax status. To ensure that your donation is deductible, check the charity’s status on the IRS database at www.irs.gov/app/pub-78/. Note: Some small charities might not be listed, so ask the group for a letter that confirms its tax-exempt status. Churches, mosques and synagogues can get tax-deductible donations even if they’re not in the database.
— Figure your sales-tax deduction. For tax year 2009, you have the choice of deducting the larger of either your state and local sales or state income tax on your federal return. Deducting sales tax is a no-brainer in the seven states with no income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming) and the two states that tax only dividends and interest (New Hampshire and Tennessee). If you haven’t kept all your receipts, you can estimate your annual state sales tax with the IRS Sales Tax Deduction Calculator, at apps.irs.gov/app/stdc/.
— Figure an investment’s cost basis. If you sold investments last year, you need to determine your cost basis — the purchase price plus sales commissions and fees, adjusted for any stock splits and reinvested dividends. If you don’t know the basis of an investment you’ve sold, you’ll have to value it at zero and perhaps pay more than necessary in capital-gains tax. Several online tools can help you avoid that problem. One of them, BasisPro, is free, but you have to register for TurboTax Premier online. BasisPro worked for Consumer Reports Money Adviser only when it had all its ducks in a row: the purchase date, the number of shares sold, the date shares were sold and the proper ticker symbol.
— Evaluate your AMT risk. The IRS AMT Assistant, a calculator at www.irs.gov/businesses/small/article/0,,id=150703,00.html is designed to help taxpayers see whether they’ll be subject to the alternative minimum tax, a more onerous taxation system affecting some 4 million taxpayers, most with between $100,000 and $500,000 in adjusted gross income. Tip: The AMT Assistant is worthwhile if you’re borderline and want reassurance that you won’t fall under the AMT. But if you want an estimate of the damages, this tool won’t help.
Filed Under: Consumer Reports