SVB had a post on Thursday about how she would be outsourcing tax preparation this year, beginning with the motivations and then an essential questionnaire you need to go through to find the right professional to work with. I won’t go into how you select the right accountant or accounting firm, she does a great job, but I will go into why I considered and opted to outsource tax preparation.

Several years ago, a friend told me that she paid H&R Block $350 to prepare her taxes. I was shocked. I felt her tax situation was straightforward (she owned a home, had one income, nothing else noteworthy that I was aware of) but she was drawn into the idea that it was a professional doing her taxes and that she was safe against the horrors of an audit. To me, $350 is too much for tax preparation for her situation but she was buying “peace of mine,” and there are many cases where I’d overpay for peace of mind.

That being said, I’m still pretty stubborn, something my beautiful wife can attest to, and as a typical alpha male I feel like I need to be in control and do things myself. I’m also a personal finance blogger. I feel that I should be well versed in the arts of personal finance and that I should be doing my own taxes. Lastly, I’m frugal, why would I paid hundreds of dollars to do something I can do on TurboTax for a few bucks? I will be outsourcing tax preparation this year.

The motivations for outsourcing tax preparation were very much like my friend’s. The biggest concern is an audit. It’s my belief that audits are only absolutely horrible (they’re still horrible and a headache, it’s a matter of severity) for people who are disorganized or not 100% honest on tax returns. So, since I’m 100% honest, I’ve outsourced accounting services for the business in order to handle the disorganized part. I may be organized compared to normal people, but I’m not organized compared to accountants or IRS agent! Tax preparation is a component of the service the CPA provides and one I’m happy to take advantage of.

There comes a time when you have to recognize your limitations and let professionals do the job. For each person, that’s different for different jobs. I may be well-read about tax information but I’m certainly not qualified, or interested in, managing the day to day accounting affairs of any business, let alone mine. When it comes to replacing a roof, something that will happen this summer, I will gladly outsource that job unless we have roofers in the area who think we can do it ourselves (that’s the frugal in me coming out, not the stubborn!).

(Photo by prima seadiva)

The contest has ended and the winners have been notified.

One of the PR firms representing H&R Block sent me three USB keys loaded with their TaxCut software and I’m going to give you all a chance to win them. I know April 15th is coming upon us soon, less than a month away, so this contest will only be running until this Friday. Some quick requirements if you want one:

• Please don’t enter if you already did your taxes or you can do them for free.
• Please live in the US (I know it’s obvious but sometimes people don’t realize it, this is for tax prep in the US!)
• Then, please leave a comment with your favorite Laffy Taffy joke ever, and/or,
• Sign up to receive these posts via email from Feedburner.

To sign up to receive the posts on Blueprint for Financial Prosperity via email, enter your email address below. All you will get are emails from Feedburner (and then one from me when I select a winner for this contest and potentially future contests), otherwise you will receive no other emails.

On Friday I will select the funniest joke, one email subscriber, and then one at random from both lists; email them, and hopefully mail out the keys on Saturday.

Good luck!

I’ve been working full time for five years now and have used TurboTax for the last four (I did it by hand the first year, I have no idea why!). I’ve never walked into a tax preparation store like an H&R Block or a Jackson Hewitt but my friends have and walked away with experiences that hardly warranted the $300 fees they paid. On one hand, my tax situation had been fairly simple for the last four years. Single income (one year I had two W-2s but that’s hardly rare), standard deduction, twenty minutes in TurboTax and I was done. I went to an itemized deduction two years ago because of the mortgage interest but that hardly registered. Two years ago I even added on a Schedule C for income generated from side ventures, again that wasn’t much of a curveball for TurboTax. I don’t have a complicated situation… why would I pay $300 for someone to ask the same questions a box would ask?

What’s your take on tax preparation? Worth it? Not worth it?

This promotion has ended, thank you to everyone who entered!

Earlier this week I shared a list of free tax preparation services, so why not end the week with a tax-related giveaway? I was contacted by a PR representative of H&R Block and offered two online codes that would allow two hardworking Americans the ability to take advantage of H&R Block’s TaxCut online service absolutely free.

I ask two things of you:

• Please read this list of free tax preparation services. Don’t enter if you can get it for free!
• Please share with me either the craziest tax related story you heard, the more ridiculous tax deduction you’ve ever heard, or your favorite tax related joke in the comments. (no story/deduction/joke, no entry!)

How will I pick the winner? One winner will be selected at random, one winner will be selected by me.

When does it end? I will select two winners on February 15th, email them, and the PR company will send out the codes as soon as they can. If I email you on the 15th and you don’t respond by the end of the business day on the 19th (Tuesday), I’m picking someone else (sorry!). Tax day is coming up soon so I don’t want to dilly dally, whatever the heck that means.

Good luck!

(Photo by nicksteever)

I bet the first thing you thought after you screamed “Happy New Year!” was how it was now time to do your taxes. (no? me neither) Unfortunately, it’s now February and it’s time to start thinking about doing taxes! Wheee! To help you along, I wanted to outline all the free resources you have for tax preparation. By this I mean I’m listing every single way I think you can get absolutely free tax preparation based on your financial situation. Some tax prep companies offer free tax filing if your situation is simple (1040EZ, or plain 1040), the IRS offers free tax filing if your adjusted gross income was under $54,000 in 2007 (it’s through third party companies), and some other companies offer free tax preparation for their customers as a fringe benefit. I’ll try to list them all. If I miss one that you know of (one that expands on the group of eligible taxpayers, we don’t need another company that offers free tax prep for the same groups already covered below), please leave a comment or email me and I’ll add to this list.

Why do companies offer free tax filing?

Companies don’t do things out of the goodness of their hearts, so where’s the catch? It appears that many of these companies offer free federal tax filing in the hopes that you’ll sign up for their state tax filing services too. With many of the programs it’s easy for them (and thus easier for you) to transfer the data over and recalculate for your state taxes. They also hope to capture you as a recurring customer since your tax information will be stored in their databases and thus you’ll have a history with them. Finally, some will try to make money off services such as “refund anticipation loans” or “money back loans.” Those “loans” are horrible deals for the consumer, which means they make tax prep companies lots of money. (If you e-file, the IRS estimates that it takes around 8-15 days with direct deposit to get your tax rebate!)

How good could these freebies be?

I haven’t tried them all, but William Perez of About.com has tried a few and wrote about their advantages and disadvantages. I don’t know how accurate that article is because it’s not dated, but it’s a start. I think that most of the major companies are going to give you great free service. The field is simply too competitive for them to risk standing up a sub-par “free” version. Today’s free customer is tomorrow’s paying customer. If my free experience is bad, there will never be a paid experience!

Now, onto the offers!

IRS freefile

The IRS freefile program is designed for those with an AGI under $54,000 in 2007 and some of the companies that offer these services also put age restrictions as well. For example, Free1040TaxReturn.com states: “Free Federal online tax preparation and e-File if your adjusted gross income is $54,000 or less and you are age 49 or under.” (emphasis mine) I suspect that has to deal more with handling the added complexities of Social Security and Medicare and isn’t age discrimination. With any of those companies listed, you’ll definitely get free federal tax filing and e-filing; you may have to pay extra for state. The IRS also offers a wizard to help determine which company is best for you.

One caveat is that not every company listed follows the $54,000 AGI rule the same way. As you’ll see in the description below of TurboTax’s offering, the $54,000 AGI rule only applies to active duty military.

TurboTax

TurboTax offers free tax filing if you:

• earned $30,000 in adjusted gross income, or,
• qualify for earned income credit with an AGI up to $39,783, or,
• served as active duty military with an AGI of $54,000 or less.

As an added bonus, you get free state filing if you live in Alabama, Arkansas, Arizona, Georgia, Idaho, Iowa, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, New York, North Dakota, North Carolina, Oklahoma, Oregon, Rhode Islane, South Carolina, Vermont, or West Virginia.

What does TurboTax cover in their free version? Your standard 1040, 1040A, and 1040EZ forms along with a bunch of schedules. They provide a list of what’s covered in the free version. The first part of that list shows the included forms, the second part shows the forms not included. One notable form excluded from the free filing is Schedule D: Capital Gains and Losses.

TaxAct

TaxAct offers free federal tax filing of 1040, 1040A, and 1040EZ along with free e-filing, with no income restrictions (state filing is, as expected, extra). I was wondering if they had any catches (I realize they say “no catches! no gimmicks!” but c’mon… who takes marketing at face value!?) and discovered this list of “Included IRS Forms.” From what I can tell, it contains everything I could possibly need including Schedule C: Profit/Loss from Business. In fact, I wrote up this review of TaxAct and give it a B+ back in March of 2005. It’s nearly three years later, I might have to try them again and update that review.

State Farm Customers

State Farm is offering free tax filing through TurboTax for its customers.

Just Need Some Assistance?

If you’re just looking for a little extra help but not full blown preparation (or you don’t qualify for any of the above programs), you can turn to the IRS Volunteer Income Tax Assistance (VITA) Program or the Tax Counseling for the Elderly (TCE) Program if you qualify. To learn more about either program and their criteria, please visit this IRS page.

(Photo by gratiot)

Every year millions of hard working Americans will walk into a tax preparers office to get their taxes done. A small subset of those hard working Americans will agree to a tax rebate loan, sometimes called a refund anticipation loan, without fully understanding how ridiculously expensive they are. Sometimes they aren’t well informed, sometimes they are simply strapped for cash, sometimes they just don’t do the math and don’t realize they’re getting the short end of the stick. Ultimately I believe the responsibility falls on the consumer to understand it because the tax preparation companies disclose everything. They tell you exactly what you’re paying, they don’t make the information difficult to find (I found H&R Block’s RAL information within two minutes), and it’s always on the consumer to be aware of what he or she is signing.

That being said, I feel that it’s my responsibility to at least write a little about how absolutely ridiculous these types of loans are. According to the IRS, if you e-file and select direct deposit as one of your options, you should get your refund in an estimated 8 to 15 days. Eight to fifteen days. That’s it! You could file right this second and get your refund in time to make rent at the end of the month. That’s how quick it is.

So, in order to get your own money back a little quicker, people are turning to loans? I had no idea how expensive they were until I looked at actual pricing information. Check out this H&R Block Refund Anticipation Loan pricing sheet (I found this in two minutes, no joke). Let’s say you are going to get a $2,000 check directly from H&R Block, rather than waiting the 8 to 15 estimated days it’ll take for the IRS to direct deposit the funds to your account. How much will you pay?

• Activation Fee: $29.95 right off the bat to even play the RAL game.
• 36% APR: That’s the interest rate of the loan you’re getting! Thirty-six percent APR! People scream about how credit card companies are predatory and the highest rate they charge, when you start defaulting on payments, is 29.99%! (That’s Citi’s default rate)
• Check Processing Fee: Another $20 fee to “process” your check.

So, on a $2,000 check they estimate that it’ll have fees of about $71.41, or about 3.5%. $71.41 is the price of a nice dinner for two. $71.41 towards your credit card debt will find you closer to freedom. Paying $71.41 to borrow money from your future self (in 8-15 days too)… that’s an outstanding ripoff. The lower the amount you get back, the more exorbitant the fees look. If your RAL is only for $200, then you’re paying $52.09 in fees which makes it an unfathomable 26%. That’s like me reaching into your pocket and swapping out all your twenty dollar bills with fifteen dollars bills. You think that sounds ludicrous? Think of how many people accept those fifteen dollars bills!

Are you really that strapped for cash? If so, that’s totally understandable. The solution isn’t a refund anticipation loan, the solution is to file your taxes right this very second. You can find an IRS sanctioned tax preparer that will help you prepare and e-file you taxes for free (if you qualify). Then, the next step is to adjust your withholdings so you aren’t over-prepaying your taxes next year. The last resort is a refund anticipation loan.

(Photo by hullbody)

KANSAS CITY, Mo. - H&R Block Inc. (NYSE: HRB) today announced plans to open low-cost bank accounts for free for 1 million of its tax clients and significantly reduce the cost of refund anticipation loans for tax season 2007.

At its annual meeting of shareholders, H&R Block Chairman and CEO Mark A. Ernst outlined a four-part plan that includes a next generation, low-cost bank account; new high-yield savings products; and enhanced financial education to better serve its tax clients.

“H&R Block has a long history of helping American families get the most from their financial lives,” Ernst said. “The steps we’re taking today build on that legacy by helping millions of our clients access the banking system in a unique way to reduce their costs and take another step toward a brighter financial future.”

The company will utilize its nationwide network of 12,500 tax offices to enable clients to open bank and savings accounts conveniently at tax time.

1. New Low-Cost Banking Solution

H&R Block has set a target to open 1 million, next generation bank accounts for free to give clients the benefits of direct deposit of their income tax refund as well as easy bill payment and purchases, and ATM withdrawals without risk of overdraft fees. The new account blends the features of a traditional bank account with the benefits of a pre-paid card
to offer secure, convenient and low-cost services that meet the needs of H&R Block’s clients.

Accessed with the new H&R Block Emerald Pre-paid Card, this next generation bank account will be opened for free and features easy account access, no overdraft fees, no minimum balance requirement, no transaction fees for purchases, FDIC insurance, and convenient monthly statements. In addition, the bank card provides a way to avoid high check-cashing fees for the nearly 3 million H&R Block clients who do not have a bank account. The card account can also accept payroll and other deposits at thousands of
retail locations nationwide.

“With direct deposit of a tax refund into an H&R Block Bank account, clients can receive their refunds in less than half the time of a mailed IRS check,” Ernst said. “And clients can avoid fees for refund loans or check cashing that together can cost $145 or more just at tax time. With year-round use, added savings averaging $460 annually are possible.”

In reaction to H&R Block’s announcement, Ellen Seidman, executive vice president of Shorebank Corp. and former director of the Office of Thrift Supervision said, “Using its understanding of the desire of consumers to combine the safety of an insured bank account with liquidity and pricing transparency, H&R Block Bank will provide consumers who have traditionally not used bank accounts with access to lower-cost solutions at scale.”

2. High-Yield Savings Solutions

In addition to its low-cost banking solution, H&R Block announced two new savings accounts that will enable its clients to turn their tax refunds into savings. At 5.25 percent annual percentage yield (APY), H&R Block’s new Easy Savings Account and Easy IRA offer among the highest rates of return in the country for FDIC-insured deposits.

The Easy Savings Account, designed as a basic emergency fund, offers convenient access at ATMs. The Easy IRA enables clients to save for retirement using a tax-advantaged account that makes it simple to claim the Retirement Saver’s Credit, a federal matching incentive for low- and moderate-income savers.

Both accounts have no minimum balance requirement and no opening or annual account maintenance fees for H&R Block’s retail tax clients. The annual fee is also waived for non-H&R Block clients who maintain a $300 minimum balance.

“For many Americans, the day they file their tax return is the one day of the year that they have managed to accumulate a non-negligible sum of money. As such, it represents a terrific opportunity to generate some long-term savings,” said Dr. Richard H. Thaler, professor of behavioral science and economics at the University of Chicago Graduate School of Business. “What H&R Block has done is create a structure in which taxpayers can take advantage of that opportunity. By allowing them to open an account and directly deposit a portion of their tax refund, reluctant savers are much more likely to act. This creates a potentially powerful tool to help solve one of the most important problems facing our country.”

3. Reducing the Cost of Refund Lending

H&R Block, in cooperation with its partner HSBC Taxpayer Financial Services, will significantly reduce the cost of refund lending for the upcoming tax season.

For a $2,800 refund anticipation loan, which is the average loan size for H&R Block, the cost could be reduced more than 40 percent compared to last year. This same $2,800 refund loan can cost as little as $60, including a finance charge of less than 1.1 percent, when the loan is combined with a bank account. As an 11-day loan, the finance charge on this $2,800 loan translates to a 36 percent APR, which meets benchmarks suggested by many consumer advocates.

“Used in combination with an H&R Block Bank account, lower-cost loans can be a bridge to entering the financial mainstream,” Ernst said. “I’m hopeful that our action will trigger price cuts and reforms throughout the RAL industry.”

Today’s action builds on past H&R Block efforts to improve refund lending. Over the last several years, the company has reduced refund lending fees, improved client disclosures and tax professional training, incorporated suggestions from consumer advocates, and supported stronger RAL regulation to ensure that consumers can make more informed choices.

“Today’s announcement represents a dramatic and profound step forward in the tax preparation business for low and moderate income Americans,” said Steven Dow, executive director of Community Action Project of Tulsa County, one of the nation’s largest providers of free services for low-income taxpayers. “H&R Block’s decision to promote savings and simultaneously reduce the cost of banking services and the cost of loans is a monumental and welcome shift in the operating philosophy of the commercial tax preparation business.”

4. Improving Financial Education and Advice

To expand its financial education and advice programs, the company will upgrade its H&R Block Advantage Report, a free report that customizes tax tips, budgeting, borrowing and savings information, alerts to government benefits, and action plans for each tax client.

“Many middle-income Americans have been left behind as traditional financial institutions focus on those with higher incomes,” Ernst said. “Tax time is a unique moment during which we can meet our clients’ distinct needs with planning and advice that’s simple and
actionable.”

Steven Brobeck, executive director of the Consumer Federation of America, acknowledged H&R Block’s efforts, saying, “The Consumer Federation of America supports any of H&R Block’s efforts that benefit lower-income households by lowering the cost of essential banking services, by providing new and effective savings opportunities, and by informing
clients how to lower banking costs and build personal wealth.”

The company said it plans to introduce additional financial advice and education tools for the 2007 tax season.

About H&R Block

H&R Block Inc. (NYSE: HRB) is a leading provider of tax, financial, mortgage, accounting and business consulting services and products. H&R Block is the world’s largest tax services provider, having prepared more than 400 million tax returns since 1955. The company and its subsidiaries generated revenues of $4.9 billion and net income of $490 million in fiscal year 2006. The company operates in four principal business segments: Tax Services (income tax preparation and advice via in-office, online and software solutions); Mortgage Services (non-prime mortgage originations and loan servicing); Business Services (tax, accounting and consulting services for midsized businesses); and Consumer Financial Services (investment and
financial advisory services, retail mortgage loans and banking products). Headquartered in Kansas City, Mo., H&R Block markets its services and products under three leading brands - H&R Block, Option One and RSM McGladrey.

This is not a paid advertisement, BFP took no compensation of any kind for publishing this press release.

H&R Block’s National Tax Advice Day website has a nice concise page listing all the important tax law changes effective in 2005 that you may not have seen, heard, or remembered. The big ones are the new rules regarding energy related tax breaks involving both hybrid/electric cars and your home, charitable giving, and a retirement savings credit. Also be sure to read about the changes to the vehicle donation rules as well.

Get yourself prepared early!

I announced yesterday that H&R Block was having their National Tax Advice Day tomorrow, January 12th, and in anticipation of that day I’ve looked around on their site for some articles that may be of some use to everyone. I found an article on common tax bloopers that can be easily avoided, I suggest printing it out and crossing it off if you’re planning on preparing your return yourself.

They are…

1. Social Security numbers are in error – They’re incorrect or missing, or they don’t match the names
2. Required documentation (W-2s, etc.) not attached
3. Return not signed
4. Incorrect filing status recorded
5. Math errors made – A math mistake, the IRS says, need not be a calculation error. It can be as simple as copying a number incorrectly, like reporting wages of $29,472 as $24,972.
6. Forms and/or schedules are incorrect or missing
7. Standard deduction used when itemizing would have saved the taxpayer more money – Don’t forget, the Government Accountability Office (GAO) estimates that over a half-million taxpayers could save by itemizing.
8. Social Security taxable benefits worksheet not completed
9. Credits not claimed or figured in error – Typical examples include the child tax credit and earned income credit. Either the taxpayer does not understand credit eligibility or calculates incorrectly.
10. Income items omitted

Every tiny little mistake adds up to an additional delay in your refund (if you’re due and lucky) or perhaps penalties (if you’re unlucky, such as errors in reporting that they don’t find until 5 years later) so it behooves you to double and triple check. Even if you get an accountant to do your taxes, be sure to double check their work because you never know.

via original NTAD Article.