How should you do your 2010 taxes?

Pencil on income tax form

There are many ways to get your taxes done.

You might, for example, want to file as cheaply and easily as possible without missing any money-saving deductions or credits.

With that in mind, here's how to choose among the four major options:

Pencil and calculator

It's for you if: You have ridiculously simple taxes.


If all of your income is reported on one or two W2s, and you're taking the standard deduction, you really don't need anything more than a pencil, a calculator and the 1040EZ form that you can pick up at the post office or download from the Internal Revenue Service.

There's no reason to spend money on tax software or a tax preparer.


When we say ridiculously simple, we mean it. If you earn tips, work freelance jobs on the side, pay student loan or mortgage interest, or have a child, your taxes are probably not simple enough.

Tax software

It's for you if: You have simple taxes and are comfortable with computers.


By simple, we mean:

By comfortable, we mean you regularly work or shop online and are used to completing computerized forms.

Most tax software, such as TurboTax and H&R Block at Home, ask many of the same questions you'd expect a professional tax preparer to ask.

TurboTax charges $19.95 for a basic federal return that you fill out online. Buying a CD or downloading software onto your desktop costs a bit more -- $29.95 for basic federal, up to $99.95 for software to do home and business federal and state taxes.

H&R Block at Home (formerly known as TaxCut), offers free online tax prep for basic federal taxes, up to $49.95 for what it labels its "Premium Service" geared to do federal taxes for the self-employed and rental property owners.

Free File is the online program from the IRS available to anyone who earned $58,000 or less in 2010. Free file will be available beginning Jan. 14.

It allows you to prepare and file your taxes online, automatically checks for errors and directly deposits your refund in as little as 10 days with direct deposit. And, as the name says, it's free.


Things get really complicated, really fast, if you have rental income, inherited money or you're self employed and have a lot of 1099s and business deductions.

Yes, you can do those kinds of taxes on tax software, but it takes time. Time, as we know, is money. Plus, the more complex your taxes are, the more likely you are to miss something.

Then there's the frustration factor.

The longer it takes to plow your way through all the tiresome questions and extra schedules, the more likely you are to blow something off that raises your tax bill.

Tax preparation companies

It's for you if: You have simple taxes and are not comfortable with computers.


Tax preparers such as H&R Block and Jackson-Hewitt are reasonable and convenient -- just around the corner from most of us.

They'll make sure you have all of the W2s and 1099s you need and ask all of the questions required to make sure you benefit from all of the basic deductions and credits you're eligible to receive.

With H&R Block, you can pick your preparer, too, by finding the local offices and reading employee biographies online. That way, you can pick the CPA with 20 years experience, not the "tax professional" just out of college.

If the chain is seasonal (i.e., they close down after tax day), you could be stuck if you forgot something and want to amend your return.

So pick one that doesn't close April 16 or that has a year-round office. H&R Block, for example, sets up temporary offices for tax season, but has a district year-round office that handles any follow-ups or amendments.

Expect the fee to reflect the complexity of your return. H&R Block says it does simple federal returns for free, but the average tax prep fee was $189 last year. State returns start at $39.


Chain firms make a lot of money-selling extras -- things like audit insurance and refund anticipation loans -- that you simply don't need.

But you'll be pressured to buy them because some firms pay their employees commissions for pushing those extras on you.

Refund anticipation loans in particular are big losers. Whatever you do, do not fall for this scam.

Sure you want your refund fast. But when tax preparers file your returns electronically, it only takes one or two weeks for the IRS to come through with your refund check.

If you give the tax-preparation company a portion of your refund to get the money that day, you're essentially taking out a short-term loan that charges triple-digit interest rates, according to the National Consumer Law Center.

Independent tax professional

It's for you if: Your taxes are complicated.


Lots of things can complicate your taxes -- owning your own business, a sizable portfolio of stocks and bonds, a prior dispute with the IRS or a messy divorce or lawsuit.

Whatever the reason, you need a professional who knows all of the latest changes to the tax laws to ensure you pay as little as possible and can prepare all of the special forms and schedules your return requires.

"If you go to the same person year after year, they can identify tax hot spots for you and notify you when there's a change in tax law," says Kelly Phillips Erb, a Philadelphia-based tax attorney who writes the Taxgirl blog.

This is the most expensive way to do your taxes. Enrolled agents, who have passed a rigorous IRS exam and background check, or certified public accountants, who are accountants who have passed state accounting exams, charge more than $100 to well over $1,000, depending on how much time it takes to explain your finances to the IRS.

But the fee is well worth it, and in most cases, it's tax deductible.


Just like there are good and bad doctors, some enrolled agents and CPAs are not as dependable as others, and they can make mistakes.

Make sure you do due diligence and research who you're hiring. If you're getting a recommendation from a friend, ask for more referrals.

Your enrolled agents or CPA should be available to meet at times that are convenient for you, and get a cost estimate in advance so the fee doesn't come as a shock at the end.