Statistics show more consumers than ever are turning to software such as Turbo Tax or Taxman or H&R Block software in order to do their own taxes. Turbo tax isn't cheap, it costs more actually than a real live tax preparer if you have simple taxes: a W-2 and no real estate. It costs less than a tax preparer if you have any kind of business taxes to file. The H&R Block software was cheaper, but for me, it seemed much less intuitive and difficult to use.

Things You Will Need

I met some people in the early 1980's who didn't pay taxes. They belonged to a radical fringe group that believed somewhere in the constitution of the United States it states that you don't have to pay. Let me tell you what happened to them: They got turned in by friends after bragging too many times at too many cocktail parties. Anyone can call the IRS and get them started on an investigation. Gone are the days when social security numbers were assigned in adulthood. It didn't take the IRS more than a few days to nail these guys, audit them for years back. The penalties plus interest has ruined their credit for life. So pay your taxes.

Step 1

Believe it or not, if all you have is a W-2, you can use a one page form called an E-Z form, and you probably need neither tax preparer nor software. The E-Z form has a booklet of instructions printed on soft newsprint paper, with a paragraph of instructions, in English for each and every line on the form. It's worth whipping out your calculator and giving it a go before you pony up the money on software. Especially if your withholding was done incorrectly, as mine was, you don't want to pay for a preparer on top of paying the taxes themselves.

You can not use the E-Z form if you had any kind of business activities, this includes yard sales, ebay sales, rentals even casual consulting. If you received money from self employed activities you must use a 1040 form. You also can't use E-Z form if you have assets such as real estate with a mortgage you want to write off, or charity contributions you want credit for, or IRA contributions. Itemized deductions require the 1040 form.

None the less, many many people, especially young people, are perfectly suited to use an E-Z form. I encourage you to at least try to read the directions and see if you can read for comprehension before you give up and pay someone else to do it. Trying it at least once will give you a better idea of if you have a good tax preparer or not.

Step 2

The tax preparer won't know any more than you tell them. Don't expect them to be able to deduct your gas you used in your car traveling on business if you haven't kept a travel log! Keep receipts organized and in one place so you can take them on your appointment. If you have real estate to claim, bring copies of all the expenses, for a rental this would include the insurance, the repair costs even the gas to drive to the hardware store if you document carefully. If you live in your own house, keep the paper from the mortgage company that shows how much interest you paid over the year.

Step 3

IF you aren't sure what to bring, and what's deductible Turbo Tax might be even better than a live person because the program is set up with prompts to ask you questions. The problem is "garbage in/garbage out." If you don't fill in the slots correctly your return will be incorrect and you will be at fault. Still, for someone with a first time business, a small business like selling books on line, or babysitting, Turbo Tax is cheaper than a certified accountant. Using it for your first year of filing will give you a good idea of what you need to keep records on for the next year if you decide to use a live person.

Step 4

Finding a reputable tax preparer. Don't assume a popular franchise such as H&R Block is better than an independent tax preparer. It comes down to the person doing the work. H&R Block may have been around for years, but if the person doing your return is new, they might not be very good. Ask questions. Find out what the person's specialty is. If you have friends in the same line of business as you, ask them who they use.

Start Early! Even if you discover you owe, and you don't want to mail it in until April 15, it's better to get a bead on what's coming up so you can budget than waiting until the last minute. Also, if you are doing them yourself, you can break up the awful task into increments of an hour a day in lieu of trying to finish the whole thing at once.

Step 5

When is it absolutely better to use a real person instead of soft ware? When you have any questions. If you aren't sure go to a licensed professional. Don't take your chances with the IRS. They can be mean.

If you just got divorced. Make sure you got all your ducks in a row. The sudden drop in income red flags you for an audit - make sure your return is done by a professional.

If there is a major swing up or down in your income.

If you have changed jobs to a markedly different profession.

If you received an inheritance in 2009. Nobody ever withholds enough to cover an inheritance so the IRS is in the habit of penalizing people over that. Be sure you use a professional tax preparer to do the calculation correctly the first time on what you owe.

Step 6

When is it ok to use software? When everything is about the same as last year.

When your business is small, and your itemized deductions are simple and straightforward.

When your only income is a W-2. or welfare, or social security.

When you have kept such lousy records that digging through them is too much of a chore for a professional. If they have to sort your stuff in addition to calculating you will end up paying through the nose to have someone else do it. Take your time, and do it carefully at home with some reputable software.

What ever you do, don't avoid paying taxes. If you don't have the full amount send as much as you have and wait for the bill. When you receive the bill, call the phone number on it to make arrangements for a payment plan. If you can, put it on a credit card, because the credit card will charge you only interest. The IRS will raid your bank account if they can. IF you haven't got a credit card, make a payment plan and STICK to it. If you still owe by the time the next year rolls around, you can't get another payment plan so take care of business as soon as possible.

Tips & Warnings

IF you have a credit card that will give you an advance at a low rate or 0% for a limited time, take advantage of that. Better you write yourself a check from your credit card (your bank may hold this sort of check for up to ten days) and pay back your credit card than owing the IRS. They don't play nice!