Tax Laws in 2022
If you’ve hired professionals to do your taxes for the past few years but you want to DIY it this year, know that the Tax Cuts and Jobs Act (TCJA) made some sweeping changes to the tax code when it went into effect in 2018. Standard deductions more or less doubled under the TCJA, which made itemizing less attractive for taxpayers who chose that route in the past, particularly because changes were made to quite a few itemized deductions as well. For example, the TCJA limits the state and local property tax deduction (SALT) to $10,000 per calendar year. The casualty and theft loss deduction has been repealed except for taxpayers who suffer a loss due to a disaster area declared by the U.S. president. Personal exemptions have been eliminated from the tax code as well.
The Cost Factor
One nice thing about preparing your tax return yourself is that it’s free if you fill out your 1040 yourself and send it to the IRS. You might also consider choosing tax preparation software from a company such as H&R Block, Credit Karma, or TaxSlayer. These preparers offer online filing that ranges in price from free to more than $100, in some cases. Their services usually include tax support and some advice as well. Preparing your own returns can take a lot of time. Of course, the amount of time you’ll spend will depend on the complexity of your financial situation. The IRS estimates that the average person (non-business filer) will take about nine hours to prepare their 2021 tax return.
Where to Start
Begin by downloading the relevant forms and instructions from the IRS if you decide to prepare your tax return yourself in paper form. You might be limited to using Form 1040 in 2022 to prepare your 2021 return unless you’re age 65 or older. Starting 2018, you no longer have the option of filing Form 1040-EZ or 1040-A—another major change brought about as an offshoot of the TCJA. The IRS decided to streamline tax returns to conform to the law, and it created a revised Form 1040 to replace the older 1040, 1040-A, and 1040-EZ. The 2021 tax return comes with three schedules that all but the simplest of tax situations will probably require—another reason why you might want to touch base with a tax professional this year.
Tax Preparation Software
Your best option might be to use tax preparation software and applications. Most programs tell you how contributing to an IRA, giving money to charity, earning more than you did the year before, or losing or gaining a dependent will change what you owe or what you get back. You can see how entering these numbers into different parts of the software can make an impact on tax calculations and tax planning. You have several options to choose from, including free and paid software. Some of the more well-known software providers include H&R Block and TaxAct. Additional charges may apply for state or more complex filings. Free internet programs are also available through the IRS Free File Alliance, but this program is limited to individuals whose adjusted gross incomes were $73,000 or less (depending on the preparer) in the 2021 tax year, and who can meet a few other requirements.
If You Hire a Professional
Be sure to find a tax professional with a level of experience and specialization that’s suitable for your needs if you choose this option. Some accountants are general practitioners. Others specialize in things such as helping Americans who live overseas or self-employed individuals in a variety of businesses. The two most common professional credentials for tax preparers are certified public accountant (CPA) and enrolled agent (EA). CPAs are trained in a wide range of accounting procedures, and some of them specialize in tax preparation. EAs are trained specifically in tax procedures.
How Much Does a Professional Cost?
Tax professionals charge an average of $220 for a Form 1040 with a state return and no itemized deductions, according to a report from the National Society of Accountants. That number jumped to $323 for those who itemized their deductions. You can also find free tax preparation services through local non-profits if you qualify.
The Volunteer Income Tax Assistance (VITA) provides free tax preparation services to people who earn $58,000 or less per year. You can also qualify if you’re disabled or if you have limited proficiency in English.Taxpayers age 60 or older can find free tax preparation services through Tax Counseling for the Elderly (TCE).The AARP Foundation’s Tax-Aide program operates most TCE sites.
These programs often set up space at local community centers, colleges, or libraries during the tax season. You can locate a program near you using this Get Free Tax Help Prep tool on the IRS website.
The Final Decision
Keep in mind that you’ll still have to do a lot of the work yourself, even if you hire a professional. It’s up to you to gather all your tax-related documents. The sooner you start, the more information you’ll have at your fingertips to make the best decision. You’ll want to save time for reviewing your tax return for accuracy when it’s completed, regardless of which route you take. A professional will certify accuracy and can help you down the road in a tax audit, but your tax return is only as good as the information you provide. You’ll also want to keep a copy of your tax return and related documents for at least three years in case the tax agencies have any questions.
