This article is by contributor Richard Barrington.

When it comes to tax preparation, distinguishing between cost and value is a crucial question. The cost can vary from nothing for doing it yourself on up to hundreds of dollars for professional tax preparation.

To judge the value correctly, though, those costs have to be weighed against the results you get, including what could go wrong if you choose the wrong approach.

To help you weigh both the cost and consequences of various tax-preparation options, Get Rich Slowly has compiled this guide with cost comparisons to help you decide which approach represents the best value for your situation.

What are your tax-preparation options?

Basically, there are four options. Here’s the run-down:

  1. Do it yourself. For basic tax returns, preparing it yourself is a fairly straightforward process, especially with IRS online forms and instructions. However, the more complicated your tax situation — e.g., your eligibility for itemized deductions or tax credits — the more you might benefit from the type of analysis and advice that a simple online template can’t give you.
  2. Downloadable tax-preparation software. Downloadable tax-preparation software can help walk you through the steps of more complex tax returns, and perhaps present you with more options relevant to your situation than would occur to you just working through a form yourself.
  3. Online tax-preparation services. This provides automation similar to tax-preparation software, only you enter your information online rather than onto software that you download to your computer. The difference comes down to how secure you feel having all that information online in the hands of a third party (i.e., other than you and the IRS).
  4. A tax-preparation professional. Tax professionals can give you customized advice that can save you money this year and perhaps make you more tax-efficient in years to come. However, that advice is only as good as the qualifications of the person giving it, so you need to do some due diligence not just on the firm you use, but on the person responsible for your return.

A bit about state tax returns

If you live and work in Alaska, Florida, Nevada, South Dakota, Texas, Washington or Wyoming, congratulations — you don’t have to worry about state taxes.

Otherwise, you’ll probably have to file a state tax return. If you had income from multiple states, you may be required to file in more than one state, and this will likely cost you additional tax preparation fees for each state.

What do different tax-preparation approaches cost?

As you can imagine, costs for the different approaches above vary widely. Even the cost for the same type of approach can differ greatly depending on your situation and which provider you use. As a result, there is no single figure that can be quoted as being indicative of the cost of each approach. Instead, we hope to show the range of costs that are out there which can give you a representative idea of what each entails.

  1. Do it yourself. It costs nothing to use the IRS resources and file your returns on its website, though some do-it-yourselfers do incur costs by buying books and other reference materials to help them understand their tax situation. However, the public library system is a good resource instead of buying these types of books.
  2. Downloadable tax-preparation software. Online tax-preparation software assists you in completing and submitting the necessary forms. We’ve been monitoring these expenses for a few years now, and there hasn’t been a lot of fluctuation in price over time. The cost goes up depending on how many forms you use or how many state returns you file if, say, for example, you moved during the year.
Note: The prices listed in the table below are the lowest amounts for the simplest of returns for Tax Year 2015. (This article will be updated again when prices for Tax Year 2016 become available.)
  • Intuit’s TurboTax, probably the best-known software package, starts at $29.99 for the basic federal return, plus $39.99 for the state return, and an additional $19.99 to e-file that state return. Total outlay: $89.97.
  • H&R Block, another highly recognizable brand, starts at $19.95 for the Basic software, which includes five federal e-files; but the additional fee for state returns is $39.95 and an extra $19.95 if you e-file the state return. Total outlay: $79.85.
  • And TaxACT, from 2nd Story Software, lets you file a simple 1040 for free, and charges nothing for the state return, which includes e-file for both federal and state returns. Total outlay: $0.

Downloadable Software – Lowest Advertised Cost for Tax Year 2015
Product (Company Name) Version Federal 1040 Simple Price State Price State e-File
At Home ™ (H&R Block ) – * Basic


(5 Federal e-files included)

$39.95 $19.95
Tax Act 2015 (2nd Story Software) Free $0

(Federal e-file included)

$0 $0
TurboTax ® (Intuit) Basic $29.99

(Federal e-file included)

$39.99 $19.99

(Except NY state.)

1. Prices shown are lowest online advertised price as of February 3, 2016.
2. Most “free” services are limited to customers with a certain tax situation.
3. Information provided is for general guidance only. Contact provider or visit official website for specific details, as prices can change without notice.
4. * Visit individual website for special bonus offers.

TurboTax - Do your Taxes for Free - It's Easy

  1. Online tax-preparation services. All-in-all, online tax-preparation services (for the simplest of tax returns) range anywhere from nothing to around $50. Here in particular, it is a popular tactic to offer free federal tax preparation in conjunction with a state return provided at an additional charge.
Note: Interestingly, the extra cost of a state return drops as the complexity and cost of the federal return increases because, in general, as the federal return becomes more complex, less additional work is required for the state return.

And while many online packages include free e-file as part of their service, some companies limit free e-file to the federal return. It’s often difficult to find clear information on whether a state return can be e-filed and if a charge is assessed for that. H&R Block, for example, indicates that state e-file is available in the program version, but an additional fee applies for online state e-file.

With a lot of these services, you don’t know your actual cost until you print or e-file your returns anyway, simply due to the fact that you often cannot predict which forms you’ll need until you are done. H&R Block’s policy is representative of most companies on this subject: “H&R Block prices are ultimately determined at the time of print or e-file. All prices are subject to change without notice.”

Here’s what you can expect to pay

  • Basic online services. If your tax picture is extremely simple, the cost ranges from nothing to $39.95 to prepare and e-file a bare-bones federal return for Tax Year 2015. Adding a state return costs $9.95 to $36.95.
  • Deluxe online services. If you’re in a more typical tax situation, you may itemize deductions and you may have interest and dividend income. Online deluxe services are likely to cost about $50 for federal returns, plus something like $40 for state returns.
  • Premium online services. For taxpayers with more complex tax situations, such as, business income, self-employment income, or income from rental property, it’s necessary to go with the premium level of service. Online premium services often start at $70 for federal returns, plus anywhere from free to $40 for state returns. A few premium services, such as Premium ($49.95 federal, $29.95 state) will bundle forms for a small businesses (Schedule C) along with your personal tax return.

Ancillary services

This is just a smattering, but there’s an even greater variety of services available once you start filing more complicated tax returns. Some collect and store your information for up to six years in the event you need to generate tax forms down the road. You can pay to have a tax professional review your work. There’s live support, audit support, and even the ability to prepare previous years’ tax returns if you need to do that.

Be certain you’re entering your information on a secure site.

Tip: How can you tell if a site is secure? Look for a web address beginning with “https:” and a lock icon or similar in your task bar.

Online Tax Preparation – Lowest Advertised Cost for Tax Year 2015
Product (Company Name) Version Federal 1040 Simple Price State Price State e-File
(HBS Financial Group Ltd)
Federal Edition $0 $9.95 $0 1040EZ $0 (Add $14.95 for e-File) $17.95 $0 (CCH)
(Now – by Liberty Tax)
Free $0 $26.95 $0 Free Basic $0 $19.95

(Unlimited states)

$0 Free Edition $0 $29.95 $0
(by Liberty Tax)
Free $0 $26.95 $0 Free $0 (State purchase required) $29.95 $0 (Not available in every state) Basic Return Package $29.95 (Add $20.00 for e-file) $20.00 No information Federal Tax Return $29.95 $19.95 $0 Federal Tax Return $28.75 $25.00 (If ordered with federal tax return) $0 Standard Return $9.95 to $39.95 $9.95 to $19.95 $0
(Tax Hawk, Inc.)
Free Edition $0 $12.95 $0 H&R Block Free ™ $0 $9.99 Additional fee may apply – no information Free $0 $0 Free if you pay for tax preparation
(OLT OnLine Taxes)
Free Edition $0 $7.95 to $9.95 Free if e-filing is available for your return
(AFJC Corp)
Free $0 $0 $0 Standard/Deluxe $19.95 (Standard) $29.95 (Available only with Deluxe) $0
(Rapid Filing Services LLC)
Basic Package $9.95 $9.95 (If filing with federal tax return)

$29.95 (If filing as standalone state return)

No information
(2nd Story Software)
1040EZ/A Tax Return $0 $0 $0
(Petz Enterprises, Inc. – Now Liberty Online)
EZ $14.95 $31.95 $0 Federal Tax Return $0 $12.95 $0 Free Basic Edition $0 $23.99 (Actual price determined at print or e-file and subject to change without notice) $0
Federal Free Edition $0 $0 $0
1. Prices shown are lowest online advertised price as of February 3, 2016.
2. Most “free” services are limited to customers with a certain tax situation.
3. Information provided is for general guidance only. Contact provider or visit official website for specific details, as prices can change without notice.

  1. Professional tax preparation. Having someone prepare your returns for you is the approach with the most variable costs because it depends entirely on the complexity of your tax situation. According to the National Society of Accountants (NSA), a fairly straightforward return (simple 1040 Form without itemized deductions), averaged around $152 for Tax Year 2014. A 1040 Form with itemized deductions and a state return averaged $261. If you have a lot of investments or other complications to your tax situation, this number can easily run into the thousands of dollars.
Here’s what the NSA’s 2014 survey found for the average cost to prepare these tax forms:

  • The average cost for preparing a 1040 (Schedule C) Tax Form is $218
  • The average cost for preparing an 1120 Tax Form (C corporation) is $806
  • The average cost for preparing an 1120S Tax Form (S corporation) is $761
  • The average cost for preparing a 1065 Tax Form (partnership) is $590
  • The average cost for preparing a 1041 Tax Form (fiduciary) is $497
  • The average cost for preparing a 990 Tax Form (tax-exempt organization) is $667
  • The average cost for preparing a 940 Tax Form (Federal unemployment) is $63
  • The average cost for preparing a Schedule D (capital gains and losses) is $142
  • The average cost for preparing a Schedule E (supplemental income and loss) is $165
  • The average cost for preparing a Schedule F (farming) is $196

Making the best choice for tax preparers

When it comes to hiring a tax preparer, in-person advice is only as good as the qualifications of the person giving it. Here are some things to think about:

  • Check your preparer’s professional designations. A CPA, tax attorney, or Enrolled Agent is a plus.
  • Make sure a preparer has a Preparer Tax Identification Number (PTIN). The IRS now requires all paid tax preparers to have a PTIN, so steer clear of a preparer who doesn’t have one.
  • Research your preparer’s history. Check with your local Better Business Bureau to see if there have been any complaints. Skim online reviews, remembering to take both highly negative and highly positive reviews with a grain of salt.
  • Full time vs. part time. Many tax preparers work seasonally, but people with complex tax situations often need advice throughout the year.
  • Ask about audit services. It helps to have assistance from your tax preparer if you are audited. Some preparers include this in the price of your return, others charge extra, and still others don’t provide this service at all. You should know whether your preparer will back up their work if you are audited, and how much it will cost you to get that assistance.
  • Ask about audit experience. Some successful IRS audit experience can be a plus; multiple instances of audits that went against the taxpayer should be a red flag.

Bottom line on finding a tax professional

  • Perhaps the most important decision in choosing tax-preparation help is fitting the service to your needs. Depending on your situation, free advice can be a tremendous bargain — or it could be the most costly mistake you’ve ever made. Know your tax situation, and get appropriate help if you need it.
  • Above all: The IRS advises taxpayers that when using a paid preparer, never sign a blank return in advance.

Why cost isn’t the only consideration

You can get quotes and compare costs, but bear in mind that cost is not the only consideration. Here are some other things to think through:

  1. Your time. Let’s say you can save $50 by doing your taxes yourself. What you have to ask yourself is how long it will take you to complete your returns and how you value your time. You might well find that the value of your time exceeds, or at least significantly offsets, the cost of paying to have your taxes done.
  2. The risk of over-paying. Tax laws change all the time, impacting credits, deductions, and different options for treating income and investments. Missing just one potentially tax-saving new wrinkle could cost you a multiple of what you would save by doing the returns yourself.
  3. Possible fines for mistakes. For individual and estate tax returns during the 2014 fiscal year, the IRS assessed more than 31 million penalties, totaling just over $13 billion in value. Clearly, it is all too easy to make a very costly mistake in preparing returns.
  4. Legal consequences for misleading returns. Beyond monetary penalties, particularly serious tax violations result in criminal prosecutions. When this happens, the IRS secures a conviction in the majority of cases it investigates, and nearly 80 percent of those convicted do jail time.

How to choose a tax preparation approach

Besides weighing the cost and consequences of various tax preparation methods, here are some other things you should do when choosing your approach:

  1. Match the approach to your needs. Generally speaking, the more complex your tax situation, the more help you are likely to need. As your wealth and family size increase, the more you might want to use electronic tax tools or professional help — which is just as well because, as your career goes on, you are more likely to be able to afford that assistance.
  2. Choose software that is up to date and well supported. If you use software, make sure it is up to date both technologically and with respect to changes in the tax code. Also, find out in advance what kind of user support is available.
  3. Consider the reputation and resources of each provider. Do some online searching, and also find out what resources any tax preparation firm or technology provider has to keep abreast of tax code changes and tricky interpretations.
  4. Take the long view. Often, people are so focused on meeting the April 15 filing deadline that they don’t think of any possible tax issues beyond that, but there are longer-term considerations. For example, some approaches offer better record-keeping that might help you if you need to reference past returns at some point.

Also, active tax advice can help you better minimize your taxes and right-size your payroll withholding so more of your money can be earning interest in a savings account rather than being held by Uncle Sam throughout the year.

Plenty of people successfully complete their own returns every year. The important things to know before you decide to do it yourself or pay for tax preparation are how the complexity of your tax situation compares to your expertise, and what the consequences of a wrong decision could be.

What option will you select this year for how to prepare your taxes? How much do you think it will cost?

[Editor’s Note: Every year, we update the information in our tax prep cost article. And since we did, we thought it would be perfect for Throw-Back Thursday.]

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