Federal income tax rates didn’t increase in 2023, so if your personal finances didn’t change much last year, you probably won’t pay much more in taxes. There’s a good chance, though, that you’ll pay more to file your taxes.
The average cost to have a tax professional prepare an individual federal tax return in 2023 was $248, an increase of more than 16% from 2021, according to a survey by the National Association of Tax Professionals. The price hike primarily stems from inflation and the increased complexity of tax returns, says Jennifer Van Elzen, director of member relations and analytics for the NATP.
Tax preparers charge for their services in multiple ways, including by the hour or based on the number of tax forms you’re required to file. If your return is fairly simple — you’re claiming the standard deduction instead of itemizing, for example — you may pay less than the average cost. But when it comes to hiring a tax preparer, finding a reputable professional is critical.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Start by looking for a preparer who is credentialed — a certified public accountant, an enrolled agent or an attorney. CPAs are licensed by state boards of accountancy, studied accounting at a college or university, and have passed a rigorous exam. Enrolled agents, who are licensed to appear before the IRS, must pass a rigorous test and meet annual continuing-education requirements.
At a minimum, look for a preparer who participates in the IRS’s annual filing season program, a voluntary program the IRS offers to encourage uncredentialed preparers to take continuing-education courses.
In her recent annual report to Congress, National Taxpayer Advocate Erin Collins cited uncredentialed tax preparers as one of the most serious problems facing taxpayers. Unscrupulous operators use the tax-preparation process as an opening to sell high-priced loans or hijack personal information to commit identity theft, says Collins.
Senior citizens with low-to-moderate income are eligible for free tax assistance from the AARP’s Tax-Aide program, which provides trained tax volunteers at sites around the country. You can also arrange for an AARP volunteer to coach you if you want to file online.
Deals for DIY tax filers
You can save money by using tax software to prepare and file your taxes, and depending on your income, you may be able to do it for free. If your 2023 adjusted gross income (AGI) was $79,000 or less, you can use IRS Free File to prepare and file your federal tax return (and in some cases your state return) for free. Free File is a partnership between the IRS and tax software providers who have agreed to make their software available at no cost to eligible taxpayers.
There are some drawbacks. Participating providers are allowed to impose their own criteria, based on age, AGI, state of residency or other factors, so you probably won’t qualify for all of them. More significantly, the major tax software providers, TurboTax and H&R Block, no longer participate in Free File.
Most tax software providers offer free versions of their programs, but scrutinize the fine print before you start plugging in your numbers. Although these programs allow you to start preparing your return for free, you could be required to upgrade to a paid program for multiple reasons — you contributed to a health savings account, for example.
In January, the Federal Trade Commission issued an order barring TurboTax from marketing its services as free unless it makes its product free to all taxpayers. The FTC said TurboTax’s advertising is deceptive because two-thirds of taxpayers are ineligible for the free product. “Most taxpayers do not have ‘simple tax returns,’ as defined by [TurboTax parent company] Intuit, and thus do not qualify to file for free using Free Edition,” the FTC said in its order. TurboTax called the order “deeply flawed” and said it will appeal.
For its part, H&R Block says its 2023 free version includes 43 different tax forms, which will enable even more taxpayers to qualify for the product than in the past. At the same time, the company said that many Americans have complex filing situations that don’t qualify for the free version. Taxpayers who have health savings accounts, for example, must upgrade to H&R Block’s Deluxe product.
You can save money by using products that aren’t as well known as TurboTax and H&R Block. FreeTaxUSA will prepare and e-file your federal tax return for free, even if the return is complex. The company makes money by charging for state tax returns ($14.99 per state). TaxSlayer’s classic version supports all federal tax forms, deductions and credits for $22.95, plus $39.95 for a state tax return (prices here are as of press time and could change).
If you’re a committed TurboTax or H&R Block software user, look for deals. Many banks and brokerages offer their customers discounts on tax software, and you can also find coupons at websites such as Coupons.com and RetailMeNot.com.
What to know about filing directly with the IRS
Meanwhile, the IRS is testing a program that would allow taxpayers to file their federal tax returns directly with the IRS, at no cost. The pilot program, which is being tested in 12 states, is limited to low- and moderate-income taxpayers with simple returns. (To find out whether you qualify, go here.)
The IRS says Direct File is not intended to replace any of the existing tax preparation programs. Still, the program has faced pushback from tax software providers. In a statement, TurboTax said Direct File was a “solution in search of a problem” because many taxpayers can already file for free.
Related Content
-
Markets Are Quiet Ahead of Fed Day: Stock Market TodayInvestors, traders and speculators appear to be on hold amid an unusually fraught Fed meeting.
-
Quiz: Test Your Knowledge of the OBBB, Wealth Transfer and Early RetirementQuiz The financial professionals who contribute to Kiplinger's Adviser Intel recently wrote about the OBBB's impact on retirement, how to ensure your wealth passes to your family and early retirement questions.
-
Optimize, Grow, Retain: The Power of Annual Client ReviewsFinancial advisers can use annual reviews to help enhance client outcomes, strengthen relationships and build their practice.
-
Potential Trouble for Retirees: A Wealth Adviser's Guide to the OBBB's Impact on RetirementWhile some provisions might help, others could push you into a higher tax bracket and raise your costs. Be strategic about Roth conversions, charitable donations, estate tax plans and health care expenditures.
-
From Mortgages to Taxes to Estates: How to Prepare for Falling Interest RatesAs speculation grows that the Federal Reserve will soon start lowering interest rates, now is a good time to review your financial plans for housing, estate, taxes, investing and retirement to make the most of potential changes.
-
I'm a Retirement Planner: These Are Three Common Tax Mistakes You Could Be Making With Your InvestmentsDon't pay more tax on your investments than you need to. You can keep more money in your pocket (or for retirement) by avoiding these three common mistakes.
-
Four Clever and Tax-Efficient Ways to Ditch Concentrated Stock Holdings, From a Financial PlannerHolding too much of one company's stock can put your financial future at risk. Here are four ways you can strategically unwind such positions without triggering a massive tax bill.
-
I'm 65 and My Property Taxes and Insurance Keep Going Up. How Can I Afford My House in Five Years?The costs of homeownership may continue to rise in retirement. Here's how to manage that.
-
The Risks of Forced DST-to-UPREIT Conversions, From a Real Estate ExpertSome new Delaware statutory trust offerings are forcing investors into 721 UPREIT conversions at the end of the hold period, raising concerns about loss of control, limited liquidity, opaque valuations and unexpected tax liabilities.
-
I'm a Financial Adviser: You've Built Your Wealth, Now Make Sure Your Family Keeps ItThe Great Wealth Transfer is well underway, yet too many families aren't ready. Here's how to bridge the generation gap that could threaten your legacy.
