About Income Tax Preparation Services
Each year as the April 15th deadline for filing federal and state income tax returns rolls around, thousands of people turn to income tax preparation services. These paid services, which will prepare and file you return with the Internet Revenue Service and the appropriate state revenue agency, are popular amidst the complex and ever-changing U.S. tax code.
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Function
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Income tax preparation services, such as H & R Block and Jackson Hewitt, will prepare your tax return after collecting information from you. Tax preparers will request tax documents (such as W2 and 1099 forms, deductions and business receipts), personal information (including filing status and information about dependents) and any additional information that may impact your tax liability such as capital gains, investments and charitable donations. Based on the information supplied the individuals will prepare your returns (state and federal) and review them with you before filing the returns. They will also arrange your refund of payment.
Benefits
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The biggest benefits a service can offer is knowledge and experience. Income tax preparation services are trained in the U.S. and state tax codes and can use that knowledge to maximize your tax refund or minimize the amount you pay. Because of the complexities of the tax laws, people doing their own taxes are adapt to miss deductions, such as interest on student loans, or make costly mistakes, such as selecting an ineligible filing status or leaving off a dependent. Income tax preparers are trained not to make these mistakes.
Income tax preparation services are especially beneficial to small business owners as they can help determine what is an acceptable business expense, especially those involving the use of a person's home for work purposes. They are also helpful with people with complex tax situations, such as those making premature withdrawals from IRAs or people required to pay income tax on social security benefits. -
Significance
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Should there be a mistake on your return or you are audited, the implications of using an income tax preparation service is significant. Paid income tax preparers are required to sign your return and list their preparer identification number as well. Should there be a mistake on your return that is the result of a calculation error (such as incorrectly figuring the capital gain tax) or a procedural error (such as an ineligible filing status) the preparer, not you, is responsible. Most national tax preparation agencies will pay any associated interest and penalties that occur because of a mistake they make. Also these services will offer assistance should you be audited.
Types
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There are many types of income tax preparation services most of which are national with offices around the country. H & R Block has more than 12,500 offices around the country making it the largest tax preparation service in the United States. Jackson Hewitt and Liberty Tax Service each have more than 3,000 offices around the country. All three income tax preparation services have offices in major department stores such as Sears and Wal Mart making it easy for people to have their taxes done.
In addition to the national chains, local certified public accountants will prepare tax returns. These are typically used by businesses, but are available to anyone including individuals who have complex tax circumstances, such as the death of a spouse.
There are also free tax help services around the country. The American Association of Retired People (AARP) provides tax help sessions in many libraries and community centers, but because these are volunteers services you do not have the same audit and error protection as you do with paid preparers.
Considerations
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For some taxpayers, tax preparation services can be costly. Most income tax preparation services charge about $40 to $50 for preparing and filing your state and federal returns depending on the complexity of them. While you might be able to do your taxes yourself, you should consider weighing this cost against the expertise and protections income tax preparation services provide.
A professionally prepared tax return will be helpful should you wish to do your own taxes in future years. Unless there are significant changes to your tax situation (such as buying or selling stocks, change of filing status or opening a business) the tax code changes from year-to-year are usually not major enough to make it difficult to use your previous year's professionally done return as a guide to doing your own taxes the next year. You should consider making the one-time investment to gain know how for future tax years.
Warning
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Income tax preparation services are not to be confused with tax lawyers. These services are adequate to prepare and file your current year's return but should your tax situation be more complex (such as failing to file previous returns or owing back taxes and penalties) you should contact a qualified tax attorney.
Also the liability on these tax preparation services regarding errors they make is negated by any fraud or misrepresentation on your part. For example should your tax return by audited because you falsified the number of dependents, the tax preparation service will not be responsible because the audit is the result of false information you supplied.
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