By Ray Martin, CBS MoneyWatch
(CBSMoneyWatch) If you're preparing your own taxes you should definitely do what the professionals do: use tax preparation software.
Tax preparation programs assure that math errors are virtually non-existent and all forms that you will need are available. Tax prep industry surveys indicate that about 25 percent of hand prepared and paper filed returns have errors versus 1 percent for returns prepared and filed using tax prep computer programs.
Tax preparation programs provide automatic calculations for income based phase-out rules, eligible amounts for all tax credits, calculation of taxable Social Security income and deductible IRA contributions. These programs even display a running total of your refund or what you'll owe while you enter your information. The two most popular programs are TurboTax and H&R Block.
When you go this route, you'll need a few tips to get started and to stay on the right track:
- Consider preparing your return on line, instead of downloading tax prep software on your computer. Online tax prep web sites allow you to eFile or print your federal and state tax returns.
- If you only have a few tax statements (a W-2 and a 1099), consider bypassing the interview process and go directly to the forms menu. Enter your personal information in the form on the computer which will look exactly like your paper form. For example, select a blank W-2 and input the information from your paper copy that you received from your employer. The program will automatically populate the information you enter for your address, income and taxes throughout your tax return, performing all the calculations automatically.
- Use the calculator tool for detailed entries, such as adding up receipts for deductible expenses. These calculators are attached to most input fields. They also provide a detailed schedule that will help explain your information, which can be helpful if your tax return is ever audited later.
- You can also override fields that are automatically calculated. Occasionally the calculations are not as flexible as you may need for your information. Most programs allow you to do this by clicking on an input field with your right mouse button.
- If you live in states with high state income and property taxes (such as California, New York and New Jersey) make sure to run the Alternative Minimum Tax calculation on Form 6251. This especially important for married filers with adjusted gross income over $80,000 ($50,000 for single filers) who also claim significant itemized deductions or dependent exemptions. It's estimated that up to five percent of tax filers will get snagged with this additional tax. If you don't calculate this, the IRS will catch it and send you a notice for additional tax, interest and penalties.
- Use the program to review your eligibility for the dependent care tax credit, especially if you also took reimbursements from a dependent care flexible spending account. Miss this and you'll unknowingly include tax-free reimbursements in your taxable income under most programs.
- If you worked for more than one employer, make sure to check to see if you are entitled to a credit for excess FICA taxes paid due to withholding from multiple employers. This will apply if your total gross wages from all employers exceeds $110,100 in 2012.
Finally, most programs will also include a final review of your return. Consider the review findings and correct any errors as specified.
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