Tax Filing 101: Choosing the Right Filing Method

While there is no “one size fits all” solution when it comes to tax filing, being equipped with an arsenal of facts may steer you in the right direction. Check out this helpful guide from our friends at Bench to get started.

This guest post is brought to you by Bench, the online accountants that use your Shoeboxed receipts to build you tax-ready financial statements.

Tax season is fast approaching and many small business owners are facing the same dilemma – what’s the best way to file taxes? While there is no “one size fits all” solution, being equipped with an arsenal of facts may steer you in the right direction.

Option One: DIY

This is ostensibly the cheap and dirty method, but what does filing on your own really cost?

Cost (Not Including Bookkeeping)

Assuming that you pay yourself a wage of $20.00/hour, the cost of filing business taxes on your own adds up very quickly. Based on IRS estimates of time spent filing tax returns, these are the prices you’re actually paying to file yourself:

Form 1040, Schedule C (sole proprietors):  $200.00 1
Form 1065 (partnerships): $640.00 2
Form 1120/1120S (corporations): $1,540 3

Accuracy

One of the most important aspects of filing taxes is accuracy – both to ensure that you get the maximum available refund and to avoid the steep penalties charged for filing errors. To put this into sharp perspective, it is estimated that Americans miss $1 billion in available deductions by attempting to file taxes unassisted – that’s $460.00 per person!4 In addition to that, in the event of an error with your tax return, you will be personally liable for any associated penalties and interest charged. Oh, and just because they can, the IRS accrues interest on outstanding payments and penalties daily.

Support

The IRS website? Google? Filing taxes unassisted is just that – unassisted. And if you happen to get audited, you will also have to represent yourself in front of the IRS or pay for professional representation.

Option Two: Invest in Software

As with almost everything else in life, filing taxes is moving into the online realm, with nearly 30% of Americans choosing this method.

Cost (Not Including Bookkeeping)

Like filing unassisted, the real cost to calculate when considering this option is the time you spend using the software, which will vary considerably depending on your familiarity with the program and the complexity of your tax return. The following prices are for TurboTax Federal & State filing, plus a conservative estimate of your time invested.

Form 1040, Schedule C (sole proprietors): $150.00 – $190.00
Form 1065 (partnerships): $300.00 – $500.00
Form 1120/1120S (corporations): $490.00 – $720.00

Accuracy

All tax filing software comes with a “maximum refund guarantee,” which entitles you to a refund on the price of the software if you can get a larger refund using another filing method. Just keep in mind that you would have to actually file your taxes by another method to claim this refund – and absorb the additional cost of doing so.  In the event that you are slapped with any filing penalties, you will be reimbursed only if the offending error was caused by a software miscalculation – not a user error.

Support

All software programs have built in support features like live chat and telephone assistance – though you will likely speak to a different person with every issue.

Option Three: Use a Retail Tax Service

If software just isn’t cutting it, but you’re not ready to invest the time and money to find a qualified CPA, you may consider a walk-in service.

Cost (Not Including Bookkeeping)

Retail tax preparers, like H&R Block and Liberty Tax Service, generally charge per form. While the best way to know for sure is to receive a quote, the following are the average prices you’re looking at:

Form 1040, Schedule C (sole proprietors): $200.00 – $250.00
Form 1065 (partnerships): $500.00 – $700.00
Form 1120/1120S (corporations): $750.00 – $850.00

Accuracy

Retail tax preparers are backed by a guarantee policy that covers you for both penalties and missed deductions; however, as with the software guarantee, you would have to catch the missed deduction in order to claim the refund. One other important thing to note about accuracy is that registered tax preparers are not required to have any education in taxation and do not have to pass any competency exams – though the IRS is attempting to change this.

Support

Your tax preparer will be able to answer questions throughout the process of filing your return, but year-round support is limited as the retail tax industry is extremely seasonal and the vast majority of employees are only employed from January – April. In the event of an audit, tax preparers are not licensed to represent you in front of the IRS.

Option Four: Call in the Pros

This option will cost you the most up-front, but it will also save you the most in the long run – much like paying for regular car maintenance to preserve the life of your vehicle.

Cost

Most CPAs and EAs charge by the hour, so the easiest way to reduce your tax bill is to ensure that your books are well maintained and that you have all the required documentation ahead of time. The following are the average price ranges for professional tax preparation, though price varies considerably by situation, location, and experience.

Form 1040, Schedule C (sole proprietors): $250.00 – $500.00
Form 1065 (partnerships): $500.00 – $1,000.00
Form 1120/1120S (corporations): $1,000 – $2,500.00

Accuracy

Both CPAs and EAs have significant education and experience in taxation. In addition, they’re required to undertake continuing education to stay up to date on changes to tax law. Not only will a CPA or EA get you the maximum available refund when your taxes are due, they will also work with you to create a customized business plan that minimizes your tax bill over time.

Support

Personalized year-round support is the greatest benefit of using a qualified CPA or EA. While other tax preparation options may be able to provide a comparable tax refund in April, only a CPA or EA can advise you on how to significantly reduce your tax bill over time through calculated tax planning and business structuring. Finally, in the event of an audit, both CPAs and EAs have unlimited ability to represent clients in front of the IRS.

Bottom Line?

There are a whole host of factors to consider when choosing a method to file taxes, so you really have to take the time to find the option that works best for you.

If there is one thing that holds true for any method, it’s that good bookkeeping and solid preparation are the easiest ways to reduce both time and expense in April (or March for corporate returns)!

To get a head start this year, learn “How to File Your Taxes in 5 Minutes per Day!


This post is brought to you by Bench. Bench is the modern bookkeeping service that provides audit-proof financial statements from online accountants at an affordable fixed price. Not in the software business or the accounting business, Bench is in the business of solving accounting problems and letting clients spend more time doing what they love.

OnePriceTaxes Files your Taxes Online for Only $14.95

As April 17 quickly approaches we want to feature how Shoeboxed works with a few of our great partners to help you make this tax season as easy and painless as possible.

OnePriceTaxes LogoOnePriceTaxes, a local company based in nearby Morrisville, NC, is one such partner that can save you time, money and headache this April.

OnePriceTaxes provides consumers with an easy-to-use solution for filing federal and state taxes online for just $14.95, the lowest cost in the tax preparation industry. OnePriceTaxes’ software offers the ability to file both simple and complex tax returns for “one price” (get it?).

Simple tax returns usually consist of W-2 forms, dependents, and education credits. For the same price, OnePriceTaxes also handles more complex tax return filings, including those that have personal businesses, rental real estate properties, capital assets, itemized deductions, and alternative minimum taxes.

OnePriceTaxes is one of just 17 companies in the nation who handle the electronic filing of returns, and they have been actively e-filing returns with the IRS since 2007. Last year, the software operated in 35 of the 41 states that file income taxes and coverage is being extended to all 41 states within the next year.

There are three things in particular that we at Shoeboxed like about OnePriceTaxes:

1. Their “interview-style” data collection makes it a lot easier to gather the information you need to put in your tax forms, without having to decipher IRS-speak.

2. You can import data from tax returns filed in previous years with OnePriceTaxes or TurboTax. Why re-enter data that you have already entered before?

3. You can import all your expenses directly from Shoeboxed! Whether you have been submitting receipts to Shoeboxed since last year, or you are catching up last-minute by stuffing them all in one of our envelopes, Shoeboxed helps you maximize your deductions by making sure you don’t miss any deductible expenses.

Since Shoeboxed automatically assigns the appropriate Tax Category to each receipt, when you import them into OnePriceTaxes they will pop up at the right time. No hassle, just deductions!

Check out www.onepricetaxes.com, and if you haven’t tried Shoeboxed’s Premium service, make sure to start a 30-day Free Trial today. Only 54 days until Tax Day!

Stay Organized,

The Shoeboxed Team

Shoeboxed & Outright Bring You: Tax Preparedness Week

With Tax Season in full swing, Shoeboxed and Outright want to make sure that you are as ready as possible for April 17 (yes, you have two more days this year, but that doesn’t mean you should actually take two more days to do your taxes… You know what they say about procrastination!)

We have put together a contest.  Starting tomorrow, we will post one daily question on our Facebook pages to test your knowledge of all things Taxes. The first 10 people to answer the question correctly each day will enter a drawing for a 6-month subscription of Shoeboxed Classic (which includes prepaid envelopes and up to 150 receipts/month – a $180 value) or 1 year of Outright Plus (which includes expanded tax and reporting features – a $120 value). Either prize will make your 2012 taxes so much easier!

Questions will be posted at 1 PM EST, Tuesday through Friday. Winners will be announced the following day. Click HERE to see the daily question!

EVERYONE’S A WINNER!  Even if you don’t win, you can still try Outright and  Shoeboxed for free! There is no better way to prepare for Tax Time.

About Outright: Outright.com is the easiest way to manage your business finances online. Outright allows you to seamlessly integrate your business bank accounts, credit cards, PayPal and ecommerce accounts like eBay and Amazon in order to effortlessly keep track of your business finances, see where your money comes from and where it goes, and quickly and easily fill out your Schedule C tax form at the end of the year. Sign up for a free Outright account today for a less taxing tax time!

About Shoeboxed: Shoeboxed scans your receipts, extracts and human-verifies all the data you need for taxes, bookkeeping and expense reports. They also create a secure, digital, IRS-accepted archive of all your receipts in case you ever get audited. You can send documents through the mail in one of their pre-paid envelopes, by e-mail, with one of their free uploaders or from one of their Android, iPhone or iPad apps. Shoeboxed integrates seamlessly with Outright.