Friday, February 5, 2016

Should I Do My Own Taxes?

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?
In Over My Head

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*


  1. Good ideas to help people do their taxes. I used to do them but now we pay for them every year. Every time I would get done my husband would start questioning me and I would start worrying over it. It just relieves my mind and his to have them done!

    1. It is stressful. My husband questions me too and I have my CPA license.

    2. So you aren't really paying to have a tax return done; you are paying for marital happiness, and that's worth something.

  2. I am with you on this one; you can learn so much about your own money situation by doing your own taxes. I have my CPA license, but work in industry. While I was in school I did my SIL and her husband's taxes to help them save money on prep fees. The only thing they were interested in was their refund. Eventually I told them I couldn't prepare them anymore - it was too time consuming when their kids started working and they started investing.

    They are now retired and had to sell their dream home because they didn't consider taxes on their 401(k) withdrawals when they budgeted their costs. This was a huge mistake.

    I use turbo tax if you answer all of the questions and your situation isn't too complicated I think you should be able to prepare your own taxes.

  3. Did you hear about efile being down? It happened Wednesday, and I'm not sure if it's back yet. I should probably dig a little more. But they can't process efile essentially, even if you've gone through a third party that says they're going to file your return, until it's back up and running.

  4. I agree that preparing tax returns is more tedious than difficult and it's certainly worth trying on your own. Efile was down on Wednesday, but it was back up on Thursday when I filed our taxes. Of course mine was rejected because I was one digit off on a tax ID number (d'oh!) but it was promptly corrected and then accepted. Just be careful when typing in those number sequences!

  5. We have always done our own taxes on Turbo Tax (or by hand before then). When we had dollar cost averaging income, it was a tedious ordeal. We were just to cheap to pay someone to enter all the numbers. My husband has a finance degree and I am great at data entry.

    We rarely had enough to "write off". It did not make sense to us to pay the interest so we could get 20-30% back. We have owned our house outright for many years. Before then we rented and saved. In exchange, taxes have been easy. I do know that one year my parents, in small business, made 10X what we did and paid less taxes.

    We have already received our return and adjusted our withholding for next year. Now that we are in the retirement stage, we are cruising.The only thing that could derail us...the next President. :) Still hoping for a flat tax and even less paper in the future!

  6. I was thinking about doing my own this year, but it turns out I got a ton of types of tax forms that I had no idea what to do with them. If I ever go back to one, normal W-2 sending job, I will, but until then, I'm sticking with paid software and audit protection.

  7. Doing my own taxes is too daunting of a task for me. It would be one thing if all I had to enter was a W2, but I have multiple items I would have to account for. If you do, too, I would suggest talking to a CPA so that there are no mistakes for the IRS to find.