Filing taxes is never easy. And for many Americans, it’s even more complicated this year.
Between mid-season changes to the tax code, multiple stimulus packages, and filing extensions, there are plenty of big-picture challenges. And if you had weeks of pandemic-related unemployment benefits to account for or you bought a house or refinanced in 2020 amid historic low rates, your individual return may be more difficult than usual, too.
Whatever the circumstances, choosing the right filing method can make taxes a little easier to navigate. For some, do-it-yourself online tax software offers a quick, easy, and inexpensive way to get the job done with little complication. Others may benefit from the experience and knowledge that a professional tax preparer can offer.
Tax Day — when your return is due — was extended to May 17, which is in less than two weeks.
If you’re unable to file your tax return by May 17, file for an extension with the IRS. You’ll still need to pay your estimated taxes due by Tax Day, but you’ll have until Oct. 15 to submit your 2020 tax return.
If you’ve put off your 2020 tax returns until now, your options for professional help will likely be limited, due to high demand and booked schedules. If you know you’ll be unable to get all your forms in order yourself by then, consider filing an extension, which you can do anytime between now and Tax Day.
But there is still time to file by the deadline. Here’s how you can make the most of your options through the final weeks of tax season and start preparing for the future:
The DIY Method: Tax Preparation Software
For many taxpayers, e-filing with online software is a great option. If you have a relatively straightforward return, online tax software can help you file quickly and accurately. Popular software brands include TurboTax, H&R Block, TaxSlayer, and more.
These online software programs use the tax information you provide to navigate you through different tax scenarios and each of the credits or deductions you may be eligible for. Many also provide free resources on-site, like articles and calculators. And if you’re willing to pay an extra fee, you can access live support online or by phone.
“If you have a plain vanilla [return] — a mortgage interest statement, some W-2s, and maybe an investment account — you may be fine doing it all on TurboTax,” says Joanne Burke, CPA/PFS, CFP, founder and advisor at Birch Street Financial Advisors in Vienna, Virginia.
In general, the decision depends on how complex your return is, but for many taxpayers, self-reporting using tax software can be the best choice for filing on time.
The Expert Route: Professional Tax Prep
One of the biggest advantages of professional tax prep over handling your own return is in the distinction between tax compliance and tax planning, according to Grant Bledsoe, CFA, CFP, founder of Three Oaks Capital Management in Sacramento.
“When your profile becomes complex enough, or there are enough opportunities where that proactive tax planning will really benefit you, that’s when I think you graduate from a software package being a reasonable option to when you really want to talk to a professional,” he says.
A few life milestones Bledsoe says can be good “markers” for people to make the jump to professional tax help include making a big career change, getting a divorce and navigating child custody situations, and approaching retirement age.
Buying or selling a home is another major life event in which a tax pro may make suggestions to help you save on your tax bill, Brandon Goldstein, financial planner and millennial finance expert for Prudential, suggests.
An accountant can help you figure out all the complexities that come along with long-term tax planning, from money-saving deductions to figuring out what counts as a business expense, property depreciation, and more.
Should You Work With an Accountant or File Using Tax Software?
If you’ve waited until now to begin filing, it may be difficult to find a tax professional with bandwidth to take on new clients. If you do think you’d benefit from expert advice before filing, it may be best to go ahead file an extension.
“I can’t take on anyone new right now,” Burke says. “But I could either help them get an extension or suggest they do it themselves, and then we will take care of the returns after [Tax Day].”
Cost is certainly a factor to consider, too, Burke says. Tax software is generally much more affordable than working with a professional tax preparer during tax season. Many industry-leading tax software companies even partner with the IRS to offer free services through the IRS’ Free File program. If you earn an adjusted gross income (AGI) less than $72,000 per year, you’re eligible for Free File whether you use a tax software program or file directly through the IRS website.
If you do choose to file using DIY software, don’t expect to rely on the paid chat or phone support services for complicated questions or in-depth tax planning. Bledsoe says these services may be most helpful for any specific questions you have while preparing your own return — “Questions like ‘Is this deductible or is it not?’” — rather than comparable to working one-on-one with a tax professional.
For any future planning, “You want to develop a relationship with someone who you can come back to year in and year out and who can help you develop a longer-term strategy,” Bledsoe says.
Goldstein agrees working with a tax professional can help ease uncertainties about your return and allows for better advice on tax-saving opportunities. It’s difficult for an automated software to pick up on the human tendencies we bring to the tax application process, he says.
“It’s not to say that automated software services aren’t applicable or useful — they certainly can be, particularly if you’ve had little to no change in your current professional and personal worlds and it’s a process you’ve done before yourself. It all comes back to where [you’re] at in life.”
What’s Complicated About 2020 Taxes?
There were a lot of provisions under the CARES Act, American Rescue Plan, and other pandemic relief programs that may make your tax return more complicated than normal this year. Even if you typically file yourself, guidance from a professional may help you navigate these new or one-off changes to the tax code.
For example, maybe you took distributions from a retirement account early to get through a period of hardship, or you’re a small business owner who received a PPP loan. “Those alone are worth assessing with a tax professional when it comes to your filing,” Goldstein says.
People who were dependents in 2019 or who may be unclear about exactly how much they are eligible for in stimulus payments may have similar questions about claiming the Recovery Rebate Credit. And for the millions of unemployed workers who received benefits in 2020, the new exemption of up to $10,200 in unemployment payments could also add confusion.
How to File an Extension on Your Taxes
In a situation where you haven’t completed your tax return by the deadline, or you’re not sure you can file accurately on your own but can’t secure an appointment with a preparer, Burke recommends making a good faith estimate of what you owe and then file for an extension.
If you decide to file an extension, you’ll have until Oct. 15 to file your complete return. But you’ll still need to estimate any taxes you’ll owe and pay those by the May 17 deadline. Filing an extension without payment could result in penalties and interest charges. You can estimate your payment using the IRS’ Tax Withholding Estimator; if you overpay, you’ll get the money back or you can apply it to next year’s return.
People often feel pressured to get their returns in by Tax Day, Bledsoe says, but an extension is not the worst-case scenario. “If you’re a procrastinator out there and you feel rushed … and you’re coming down to the deadline, just kick the can down the road and file based on the extension deadline.”
Burke says that’s especially true this year, given changes to the tax code and late-season guidance from the IRS. “These changes are wreaking some havoc,” she says. “So by pushing off your return, if you have any of these situations that are COVID-related, then you can digest the new laws and figure out how they apply to you.”
Free Tax Assistance and Resources
Among other relief measures, this year’s Economic Impact Payments in response to the pandemic have highlighted just how important it is to file accurate and timely tax returns with the IRS, since the agency used Americans’ latest tax information to determine and issue payments.
As the IRS continues to issue stimulus payments to those who haven’t yet received what they’re owed, filing your return and ensuring your information is up-to-date can help ensure you receive the full stimulus amounts you’re owed.
If you don’t typically file and you’re unsure of the process, there are resources available for free assistance.
Note: These programs may offer reduced or limited services through the current tax season due to the ongoing COVID-19 pandemic.
- IRS Volunteer Income Tax Assistance (VITA): Free basic tax preparation for qualified individuals who make $57,000 or less, persons with disabilities, and limited English-speaking taxpayers.
- IRS Tax Counseling for the Elderly (TCE): Free tax help for taxpayers ages 60 and older, with volunteers specializing in pensions and other retirement-related questions.
- AARP Foundation Tax-Aide: Nationwide free virtual or in-person assistance focusing on taxpayers over age 50 or with low-to-moderate income.
- Taxpayer Advocate Service: An independent organization within the IRS which assists taxpayers facing financial hardship, helps with tax problems left unresolved by the IRS, and more.
- Low Income Taxpayer Clinics (LITC): Represents low-income individuals in resolving tax disputes with the IRS and provides outreach for taxpayers who speak English as a second language.