Should I Do My Own Taxes?

Now that most tax forms have been issued, most Americans are either preparing to do their taxes or get them done, or are putting off doing them or getting them done.  Those who are expecting a refund are generally in a bigger hurry than those expecting to write a check.  Nevertheless, we all need to attend to this chore in one way or another.

So, Should I Do My Own Taxes?

Without hesitation I will say "Yes" you should, unless you have done it yourself recently, or unless you are wealthy enough that the time it takes to work through your return is more valuable than any money you might save.  However, I do not necessarily suggest that you file that return.

But I'm Not a Tax Professional; How Would I Do a Tax Return?

The same way most tax professionals do, with software.  Most of the big tax preparation software companies offer free online versions, and that is what I use.  If you go to most of the storefront tax preparation offices, you are going to work with a preparer who knows little if anything more about tax law than you do.  Those people ask you questions as prompted by the computer and fill in the answers you and/or your documents give.  They are not qualified to give legal advice or accounting advice.  They fill out forms.  You can fill out forms on your own computer.

I Don't Know--Are You Sure I Can Do It?

Yes, I'm sure.  I've done our taxes most years since we've been married (27 years), and I did my own before that.  I started with the tax form and the instruction book, moved to software from the computer store, and, for the last few years, to online software.  The software asks the questions; you answer them.  What is your name?  Social Security Number?  Your spouse's name?  Children?  How old?  Were you employed?  By whom?  Did you get a W-2?  Enter the information here.  While some of the steps are different between different programs, basically they all lead you to enter all the necessary information.  All the questions can get annoying, but the programs have been set up as a collection of "if-then" routines.  If you have children, then it asks their ages, and if one is childcare age, at some point it will ask you for your childcare expenses.  If one is college age, at some point it will ask for your tuition expenses.  Work your way through the program of your choice.  I've used Turbo-Tax, Tax Act and H&R Block's online program.  I often use two in one year to see if the results are the same; if they aren't, I try to figure out why (typing errors are the usual answer). 

I Know I Want a CPA to Do My Taxes, So Why Should I Do Them First?

There are good reasons to use a CPA to do your taxes.  If you have rental property and are figuring depreciation and deductions or if you have a business and are trying to decide of certain expenses are deductible, or if you want advice on what you can do next year to reduce your taxable income (which is different from increasing your refund)  from the business, a CPA or tax attorney may be worth the cost. If you have non-standard investments, the tax software may not know how to handle them.  However, for most people who are paid an income that is reported on a W-2 or 1099, and who have investments for which they receive tax forms from the investment company, a CPA isn't going to be able to save you any money over the computer.  If you don't believe me, do them yourself on the computer, and then get the CPA to do them.  What's the difference?

What about if you really do have a good reason to give the job to the CPA?  Do them yourself anyway, at least every few years.  Why?  Because I think every adult needs to know how their income taxes are determined.  Maybe you can really get this information from your tax form, and understand it, but given the large number of people who pay data entry clerks to do their taxes, I question how many people really understand the system.  If you understand the system, you can do a better job of making it work for you--even if that means being better prepared to question your CPA as to get the best advice from him or her.  

You Said the On-line Versions Are Free:  What's the Catch?

They make their money from the "freemium" model.  The software is free to use, but along the way they offer you the chance to buy various upgrades.  Most people can complete a return without them.  Some offer the federal return at no cost but charge for the state.

Note:  Since writing this article I have become aware that the IRS has deals with several companies that require them to offer free Federal filing, if your income is under $62,000 and if you enter the software via the FreeFile link.  Check the information on this page carefully before you start your return to make sure you are dealing with one that fits you.  I did my son's 1040EZ on one that wouldn't let me free file because of his age.  Since the form was simple, I just re-did it on another service, but had it been more complex I probably would have paid the money just to have it over with, which is what I suspect they hoped I would do.  

When Should I Get Help?

When you realize you are in over your head, that's when.  No one but you knows when that is but if you have filled out the forms, answered the questions and you can't get the error messages to turn off, or if you owe far more than you thought you would, asking for professional help may be the only answer, but see a professional--a CPA, tax attorney or enrolled agent-- not a data entry clerk at a storefront tax preparation service.  A few years ago my autistic son was in an expensive program at a school for the developmentally delayed.  It is a program that, had he made it to the top of a waiting list, tax dollars would have paid for.  However, we did not want to wait, so we paid the fees.  I wanted to know if they were deductible.  I read everything I could find about the subject, and I still wasn't sure--I was leaning toward saying they were not, but I wasn't sure, and the amount of money at stake was substantial, so I asked a CPA.  He too researched and looked at it a couple of different ways, and when it was all said and done, said that no, the expense was not deductible.  Even though he did not get the answer I wanted, I do not think I wasted my money.  On the other hand, the rest of the return he did matched the one I did, so I felt confident doing my own return the next year.  

Who Should Be Able to Do Their Own Return?

If your income is all accounted for on W-2 and 1099's, if your investments are all in things that issue yearly tax forms and if you do not own a business, then  you are unlikely to have problems with your tax return.  If you do not own a house or a business, you are not likely to be able to itemize your deductions and should be able to complete a simple tax form.  Complete your return on one of the online services and, if you paid someone to do your return last year, compare them (actually comparing your return to last year's is a good way to catch any omissions in any case).  What is different?  I'm not talking about exact numbers--a person who earns exactly the same from one year to the next is probably rare--but look at the lines.  Did last year's return have an entry on line 19?  Why?  Does this year's return?  Why or why not?  Do that for each line.  For most people, filling out tax returns is tedious, not hard--and by the time  you've gathered the information for the tax preparer (whether that person is a data entry clerk at a storefront service or a high-priced tax attorney) you've already done half the work.  

You probably can do your own taxes and you should have an understanding of how your taxes are computed, which is information best learned by completing a tax return. Try it, even if you do decide to hire someone to do the final copy.

*Part of Financially Savvy Saturdays on brokeGIRLrich, A Disease Called Debt and Femme Frugality*