True Cost of Tax Software?

Some people have very simple income tax returns and one of the free services is perfect for them. But do watch out - some of the "free" packages are only free for your federal filing. If you must also file a state income tax return there may be a fee.

But if "free" doesn't work for you, then you have choices. You could do it manually (yes, some actually do that), purchase tax software, or work with a professional. What is the cost?

Tax software for consumers averages in price generally between $29.95 and $104.99, with an average sticker price including state software of around $63. But that's not all....

Next comes your time. According to the IRS, the average amount of time spent by an individual preparing their own income tax return is 13 hours. (In contrast the average time spent by individuals who utilize a professional preparer is only 2 hours.) What is your time worth? If your average annual income is $50,000 then that 13 hours works out to a equivalent of about $312.

What about the results? Based on a recent survey of 2000 Facebook users, the average refund for those who did their own taxes was $1,824. Contrast that with the average refund for those who used a professional of $2,615. Of course the refund amount varies a lot from one return to the next, software use, and the complexity of the return. And that kind of a survey is not very scientific, but you get the idea.

So the total cost? If you add the averages from above it comes to $1,166. That is a lot more than most professional preparers charge for an average tax return. Gives one something to consider, huh?