How to save money on tax prep

Whether you use a pro or do it yourself, these tools can help cut your costs

If you do your taxes yourself, you're in the minority. According to a recent poll, 58% of subscribers to Consumer Reports Money Adviser, a sister publication of Consumer Reports, expect to pay someone else to prepare their 2009 taxes That's similar to IRS estimates that about 60 percent of taxpayers used a preparer last year.

Do-it-yourselfers can take advantage of many online tax-prep tools that offer free trials—just type "tax-prep software" into a search engine to find them. You can prepare your federal return free on a secure server and pay nothing until you file. In addition, several online tools, including TurboTax, H&R Block at Home, and TaxAct, offer basic versions for simple returns that are free to prepare and file, regardless of your income. The IRS offers its own free "fillable form" for folks who don't need prompting from tax software. And there's FreeFile, accessible at www.irs.gov, which offers federal tax prep and filing for people with $57,000 or less in adjusted gross income or who meet other criteria.

But even if you use a tax pro, you can save money by doing some of the work yourself. One way is to complete the tax organizer many preparers give their clients at the beginning of the season. "The more backup they have, the less time we need to spend on their return," says Patty Chantler, tax partner at Sensiba San Filippo, a CPA firm in San Jose, Calif. She estimates Bay Area tax practitioners charge $100 to $500 an hour. A basic return for two wage-earners might cost a few hundred dollars; more complexity could cost thousands.

The following online tools can help as well. Some may require you to register, though there's no fee for use. And we've included time-saving tips. These tools can help you perform the following tasks:

Value and tally donations

A Turbo-Tax feature, ItsDeductible, is free online whether you use the software to prepare your taxes or not. It's available year-round, at turbotax.intuit.com/personal-taxes/itsdeductible/index.jsp. Its competitor, H&R Block's DeductionPro, is also free year-round, at www.deductionpro.com/dpro/Welcome.jsp. Both use data from independent sources to value donated goods and let you tally contributions and charitable mileage.

In a recent test, DeductionPro was more convenient. Unlike ItsDeductible, it allowed us to print out estimated values of deducted items. And in a random comparison of values for donated household goods, books, and clothing, DeductionPro estimated higher values more often.

ItsDeductible's advantage is that it can help you value donated stock. Tip: While you can't print out the estimated values of donated goods, you can highlight the pages with the estimates and use the "print screen" function to print the resulting image to use when you prepare your taxes.

Find out a charity's tax status

To ensure that your donation is deductible, check the charity's status on the IRS database at www.irs.gov/app/pub-78/. Note: Some small charities might not be listed, so ask the group for a letter that confirms its tax-exempt status. Churches, mosques, and synagogues can get tax-deductible donations even if they're not in the database.

Figure your sales-tax deduction

For tax year 2009, you have the choice of deducting the larger of either your state and local sales or state income tax on your federal return. Deducting sales tax is a no-brainer in the seven states with no income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) and the two states that tax only dividends and interest (New Hampshire and Tennessee). If you haven't kept all your receipts, you can estimate your annual state sales tax with the IRS Sales Tax Deduction Calculator, at apps.irs.gov/app/stdc/.

Figure an investment's cost basis

If you sold investments last year you need to determine your cost basis—the purchase price plus sales commissions and fees, adjusted for any stock splits and reinvested dividends. If you don't know the basis of an investment you've sold, you'll have to value it at zero and perhaps pay more than necessary in capital-gains tax. Several online tools can help you avoid that problem. One of them, BasisPro, is free but you have to register for TurboTax Premier online.

We tested BasisPro to find the cost basis on the sale of Russell 3000 iShares, which we said were received as a gift. BasisPro worked only when we had all our ducks in a row: the purchase date, the number of shares sold, the date shares were sold, and the proper ticker symbol. It came up with two incorrect ticker symbol choices; we found the right one using the free Google Finance Web site (www.google.com/finance). But once we entered that information, BasisPro gave us the correct cost-basis data. In the past, we've also used it successfully with more complicated sales involving company name changes and spin-offs.

Evaluate your AMT risk

The IRS AMT Assistant calculator is designed to help taxpayers see whether they'll be subject to the alternative minimum tax, a more onerous taxation system affecting some 4 million taxpayers, most with between $100,000 and $500,000 in adjusted gross income. Tip: The AMT Assistant is worthwhile if you're borderline and want reassurance that you won't fall under the AMT. But if you want an estimate of the damages, this tool won't help. When a grizzled AMT veteran used it, she got a message to fill out the convoluted IRS Form 6251, Alternative Minimum Tax, saving no time at all.

This article appeared in Consumer Reports Money Adviser.