2022 Tax Filing Options (+ Infographic)
The best way to file your income tax returns is by e-filing. 90% of taxpayers file electronically. E-filing is quick, safe, reliable, and a preferred method of the IRS.¹
E-filed returns have 20% fewer clerical and math errors. The best way to avoid math errors is to use tax preparation software. Tax software does most calculations and flags common errors. It will prompt you when something is missing and often won’t let you e-file until everything is fixed.
If you end up e-filing with incorrect personal information, the IRS will reject the return and give you an option to fix it before you re-file. On the other hand, if you send your tax returns with mistakes via paper, you won’t know whether you made errors for weeks.
The fastest way to receive a refund is by selecting direct deposit, as 8 out of 10 taxpayers choose to do so. 9 out of 10 refunds issued by the IRS take less than 21 days.²
Selecting to e-file and opting for a direct deposit reduces the number of weeks the tax return is processed, and the money hits the bank, from an average of 8 weeks to 1-3 weeks. If you provide incorrect bank information for direct deposit, the IRS will send you a check instead.
If you (file + refund type)
e-file + direct deposit
paper file + direct deposit
e-file + check
paper file + check
After you choose whether you want to file electronically or via paper, you need to decide how to file your taxes. For example, do you plan to use free filing options, go to a paid tax preparer, or file it yourself?Currently, there are also hybrid options available, such as preparing your tax return yourself and having a tax preparer check your work.
File Yourself via IRS Free File
From the 153.7 million tax returns filed for the tax year 2019, 38% self-prepared their taxes using online software, while 52% went to a tax preparer (see Infographic below).³ According to the IRS, around 70% of taxpayers qualify to file using the IRS Free File (IRS FF) program, but only about 2% use it each year.
There are two ways to utilize the free filing options:
- If your AGI is less than $72,000 (including MFJ filers’ combined income), then you can use the IRS-approved Free File (IRS FF) tax software offered by tax preparation companies or
- If your AGI is more than $72,000 and you can perform most of the calculations yourself, you can use the Free File Fillable Forms.
Most IRS FF tax software only covers federal filing, but few also offer free state tax returns. Unfortunately, many providers have additional qualification criteria based on age or location, which makes things confusing.
The Free File Fillable forms are electronic pdfs that can be filled out and transmitted online. However, they have limited error checking and perform basic calculations only. This is a possible option for taxpayers very comfortable filling out tax forms.
Somebody with a simple tax situation can definitely take advantage of these options. However, a more complicated taxpayer may want to consider the alternatives listed below.
|File Yourself via IRS Free File|
|Tip||Best for a simple situation|
Use a Free Tax Pro through IRS VITA Sites
For over 50 years, the IRS has been working with third-party partners to provide free in-person options for taxpayers.
The taxpayers can take advantage of these options by visiting a free in-person site run by:
- The IRS Volunteer Income Tax Assistance (VITA)
- The IRS Tax Consulting for the Elderly (TCE) or
- The AARP Foundation’s Tax-Aide program.⁴
To find your closest location, visit the IRS website.
The in-person free filing options are very generous and vary based on the program running them. The IRS manages all, and the volunteers who staff them must be IRS-certified by passing tax law training each year.
The free in-person options are best for easy to medium difficulty tax returns. The most complex tax returns (e.g., rental income, virtual currency transactions, or NOLs) are out of scope under the IRS program and are better suited for paid preparers.
|Use a Free Tax Pro through IRS VITA Sites|
|Tip||This is a very cost-efficient option if you need to file multiple years and have relatively average-difficulty returns.|
Many of these programs are geared toward seniors, non-English speakers, and low-income taxpayers. However, everyone can take advantage of them as long as you qualify. The volunteers are IRS-certified and many have a tax background. There are also review processes in place to ensure that the tax returns are accurately prepared.
If you are in the military, your tax return consists of several unique rules, which even paid tax preparers may not be familiar with. Two free-filing options specialize in military filings.
One is through MilTax, a service provided by the Department of Defense; another is through the VITA program on many military bases, staffed with volunteers certified in military tax returns.
File Yourself via Brand Software
Filing taxes with a tax pro can be expensive – the average tax return preparation price is $230 per taxpayer, while business filers (Schedule C, E, or F) pay around $440.⁵ Even if you self-prepare your taxes online, the price for tax software can range from free up to $200 and more, and you have to do the tax preparation yourself.
Many tax software companies advertise free filing options on their websites. However, they are not the same as the IRS FF on the IRS website. Sometimes, taxpayers who start with a free version on the tax preparation companies’ websites end with a paid one. Just by adding a form to your tax return, it can upgrade you to a paid version.
ProPublica has reported extensively on the deceitful tactics⁶ that some tax software companies use. For example, some companies offer “free” options that are not transparent about what they cover, which in turn ends up costing taxpayers in the end. Likewise, taxpayers can be easily ‘upgraded’ to a paid version during the tax preparation process.
|File Yourself via Brand Software|
|Tip||Before you start, check if your forms are covered in the version you select or purchase.|
Hire a Tax Pro
If you decide to hire a tax preparer to help you with your taxes, you must remember that you are still responsible for any mistakes on your tax returns. That is why it is imperative to pick a tax preparer that you can trust, especially if your tax return is complex. The IRS has a database of federal tax preparer credentials and qualifications.
For more complex situations this is a great option. Some specialize in more advanced tax returns, like business filings and situations that won’t be covered by free options such as NOL, rental income, virtual currency transactions, etc. You also often have year-round access to these professionals and can develop a personal relationship over the years.
A great additional benefit of using the IRS FF and free in-person VITA options is not being bombarded by extra offers and products. For example, when you select paid tax preparation software or go to a paid tax preparer, you are often urged to purchase extra products,⁷ such as:
- Refund advanced loans – loans against your incoming refund for faster access to the money;
- Refund transfers – using your refund to pay for tax services (around $34-$40).
- Audit support services – extra protection in cases your tax return gets audited.
- Tax identity protection – extra coverage to help you resolve any tax identity fraud.
These additional products can cost $0, $20, $40, or even over $70 (some costs are per tax return while others are per filer). Some, like advanced loans, are ‘free’ in the sense that you don’t pay for them upfront, but they are incorporated into the overall tax preparation fee, or they serve as a marketing tool.
|Hire a Tax Pro|
|Tip||Check the Tax Preparer Directory for your tax pro’s credentials. There are other hybrid options available such as drop-off, tax pro review, etc.|
4. Technically AARP program runs the TCE sites, but they are very large and have a good options on their website for finding locations where you can get tax help, so I am listing them separately.
5. Pg. 108 of 1040 Instructions: https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
6. Read more about dark pattern tactics: https://www.darkpatterns.org/
The infographics at the top summarize each filing option’s advantages and disadvantages. There is no option that is perfect for everybody. Each option has pros and cons. You have to assess your individual situation and determine what is best for your family and financially feasible.