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10 Questions to Ask Before Paying for Add-On Tax Preparation Services

Taxes online - What's free and what's notWith just over a month to go before tax season wraps up, many taxpayers are still mulling their filing options, hoping to find the best deal for tax preparation. As we've posted previously, there are a number of free and low-cost filing opportunities for taxpayers, including the IRS FreeFile program. However, not all taxpayers qualify for FreeFile or feel comfortable using the FreeFile software packages.

If you're one of the millions of taxpayers who use a paid software package from home or a professional tax preparer, how do you know if you're getting the best deal? When is "free" really free? And when does paying extra for services make sense? Here are 10 questions to consider when comparing pricing from one service to the next:1. Is the Cost of E-Filing Included in the Preparation or Package Price?

It's easy to get carried away with promotional pricing, but you always need to read the fine print. The new tax laws require some tax professionals to e-file returns, and e-filing can come at a premium, so ask ahead of time what the total cost will be to both prepare and file your return. Similarly, many retail tax preparation software packages charge one fee for the cost of the software and another to e-file. If you plan on e-filing your return, find out how much additional, if any, the service will cost you.

2. How Much Additional Cost is Associated with Preparing and Filing a State Return?

Most (though admittedly, not all) paid tax preparers will quote you a fee that includes federal and state returns, but be sure to confirm this is the case. In contrast, most tax preparation software packages tend not to include the cost of preparing and filing state returns; sometimes, this can be separately stated as one or more fees. No matter which option you choose, confirm the total price for preparing both the federal and state returns.

3. What About Multiple State Tax Returns?

If you live and work in two separate states or if you work in multiple states, you may need to prepare and file more than one state tax return. Some tax preparation software packages aren't capable of preparing returns for multiple states, so verify that adding another state return is possible and affordable. Additionally, in a handful of states (California and Oregon, for example), tax professionals must be licensed in order to prepare tax returns -- if you need this service, make sure your tax professional is able to do returns in more than one state.

4. Does the Package Include Preparing and Filing Local Tax Returns?

More cities and localities now require the preparation and filing of local returns to report not only earned income but, in some circumstances, unearned income such as dividends and interest. It's not unusual for local returns to be more confusing than federal returns. If you're required to file a local tax return, confirm that your tax preparation software or your tax professional is able to prepare the return. Not all cities and localities can accommodate e-file, but if yours does, find out how much extra you should expect to pay.

5. Is There a Cost to Review my Tax Return?

Most tax preparation software packages offer an abbreviated "error check" for free; a handful offer a review for a fee. A tax preparer should never charge to review your return for his or her own errors; however, if the review involves comparing information from your prior year return or offering tax planning advice for the coming tax year, the charge may be justified. Ask for details in advance if there's a fee for review.

6. What Exactly is Audit Insurance?

A number of tax preparers and an increasing number of tax software packages now offer variations on "audit insurance" or similar products, where they agree to provide some measure of support in the event of an audit. These programs vary widely. Some audit support packages are free and are included with the cost of preparing your return; others are "add-ons" that you purchase for an additional cost. Some make a representation that they'll pay any penalties and interest as a result of their error while others expressly state that they will not be responsible for any penalties and interest incurred because of their services. Finally, some packages offer extremely limited audit support (assisting with communication only), while others will agree to provide representation at audit, either for free or an additional fee; be aware that representation at audit may not be an option if the preparer is not allowed to represent taxpayers before the IRS. Ask for details before you commit to insurance; most tax professionals tend to be wary of paying additional fees for this service.

7. How Quickly Will I Get my Tax Refund?

The IRS estimates that your refund check will be issued within six weeks from the received date for paper returns or three weeks after the acknowledgment date for an e-filed return. If you e-file and use direct deposit, you should expect to receive your refund in eight to 10 days. Check with your tax preparer or tax software package to see whether your refund might be delayed due to their own processing requirements, such as sending returns in bulk once they hit certain targets; you should avoid paying "premium processing" fees to expedite filing. In most cases, unless you've been advised that there will be a delay, you should not have to pay to file your tax returns in a timely manner.

8. Are There Any Costs Associated with Getting my Tax Refund?

If you pay to e-file your return, there shouldn't be any additional cost to obtain your refund. If you want your refund faster than the IRS estimate of eight to 10 days using e-file and direct deposit, there will be a fee from your provider. This is because you're not getting your refund from the IRS any faster; there is no such thing as an "instant" or "24 hour" refund from IRS. Rather, the provider is advancing the funds to you in the form of a loan. Fees can range from a few dollars to 500% of the value of the refund. Don't be short-sighted. If you can wait a few days, you can save hundreds (or in some cases, thousands) of dollars in fees and interest. If you believe you can't wait those few days, pay attention to the applicable fees and interest rates carefully.

9. Is There a Cost to File an Extension?

If you can't file your tax return on time, you can always file an extension. The IRS doesn't charge a fee for filing an extension, but many preparers and software packages may, depending on the services provided. Some programs will calculate any tax due with the extension, since an extension only extends the time to file and not the time to pay. If you owe, you may need to make a payment with your extension; some additional fees may apply depending on how you pay (such as credit card payments).

10. Will the price go up after April 18?

Don't assume that the preparation price advertised on the storefront or website will stay the same for ever. In addition to the generic disclaimer you'll see stamped on many websites proclaiming "all prices are subject to change without notice," some preparers ramp up their fees after tax season is officially over. If you fail to file on time -- or if you've filed for an extension -- you may see your fees jump, and in some cases, double. Be sure and confirm the pricing remains the same if you plan on filing after Tax Day.

Free can be good, but it's not always better. Sometimes, it's definitely worth it to pay a little more, but you don't want to pay more than you have to. Be smart. Read the fine print and ask the right questions so tax season doesn't cost you any more than is necessary.

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