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How Complicated is it to Do Your Own Taxes?

Sunday, February 5th

How Complicated is It to Do Your Own Taxes?

April 15 approaches on the calendar, and we all let out a collective groan: tax season once again. No matter how many times we've done our taxes, every year seems to catch us off guard and feeling unprepared. What is it that the meme says? "I'm so glad I learned all about parallelograms in high school math instead of how to do my taxes. It comes in so handy during parallelogram season."

You decide to let someone else do all the heavy lifting and have your return prepared professionally - until the sticker shock hits you. Even the easiest tax return - young adult, simple W2 wages, no donations or property taxes to deduct, etc. - will probably cost at least $100 to file. And, if your tax situation is more complex because you own a business, have capital gains and losses on your investments, or some other combination of factors, an accountant could charge you over $1000 to get your taxes done.

So, like more than 17 million Americans, you opt for the do-it-yourself approach to sending in your tax return. What should you expect: smooth sailing or lots of aggravation?

The good news is, most people find it incredibly easy to do their own taxes. There are a number of trustworthy, affordable tax preparation software options out there, most of which can be used online without having to purchase a CD-ROM as in days past. But, before you choose your tax prep platform, you'll need to do a bit of work.

First, you should round up your tax documents. The most obvious ones are documentation of your income and taxes paid during the year: a W2 if you have a salaried or hourly job or 1099s if you're an independent contractor. You should also receive statements from your bank and/or investment brokerage if you earned interest, contributed to an IRA, or bought/sold stocks and bonds. If you have a mortgage, your lender will send you a form showing the interest you paid, plus any property taxes paid from your escrow account. Forms sent to you are required to be postmarked by January 31st, so you may want to wait until February to work on your taxes - but you can always start earlier, filling out whatever you already know (e.g. names and SSNs of household members).

Next, determine which filing status is best for the tax year you're preparing: single, married filing jointly, married filing separately, head of household, or qualifying widow(er). Of course, not every status applies to every individual; most people either file as single or married filing jointly, but under some circumstances it can be advantageous to file separately if you qualify. Also, consider whether or not someone else can claim you as a dependent in that tax year: for example, if you're a full-time college student and you get married after graduation, your parents may want to claim you one last time before you're on your own tax-wise.

Finally, evaluate whether or not you'll take the standard deduction or itemize. If you qualify for deductions for childcare expenses, education costs, medical expenses and/or charitable giving, it might be worth it to itemize. You can always enter your information in the tax prep software one way and then switch to the other, to see which one makes the most sense for the tax year you're working on. Just remember that you'll need to document what you spent on anything you itemize, in the event that the IRS wants you to prove it.

And, with those three to-dos complete, you're ready to choose a tax preparation software program! Most of them work in roughly the same way, giving you an extensive series of questions to analyze your situation in-depth and maximize your deductions and credits. Some providers have a live professional option, in the event that you get into the preparation of your return and want to talk to an actual human about any questions or concerns you may have. And, most online tax prep services let you file your return electronically at no charge (though some do have fees if you need to prepare and file federal and state returns).

The bottom line is there's just no need to spend hundreds - or thousands! - of dollars to file your taxes. Preparing your return on your own is not only straightforward but also much more affordable, with most tax preparation programs costing $120 or less. (And, by the way, you can deduct that $120 on the following year's tax return!)

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Tax Preparation Service FAQ

Online Tax preparation services walk you through a series of questions, much like you'd get with a human tax preparer: are you married, do you have a mortgage, and so on. The program fills in your tax forms based on the answers you provide, and at the end your return is ready for filing. Tax preparation services allow you to file your returns electronically, but you always have the option to file them by mail.
That's up to you! Almost every tax preparation platform today makes it possible to do your entire return online, no downloads or CD-ROMs necessary. But, if you prefer to do it the more old-school way, you can still find tax preparation services that download to your computer and let you work offline.
That depends on several factors. The more complicated your financial situation, the more likely it is that you'll need a tax preparation service that goes beyond the basics. Most tax preparation services will walk you through the options and recommend the right product for your needs.
Yes, most of the time. Many services will take the information you entered during your federal return and carry it over into your applicable state return. Keep in mind that you may have to pay extra for your state's online tax service. You can opt to file your federal return electronically (often included at no extra charge) and file your state return by mail if you wish.
For the most basic tax returns (those that only have W2 income, no investments, no mortgage interest to deduct), some tax preparation services are completely free. Otherwise, you can expect costs ranging from $19 - $120, with the most expensive packages for those who have self-employment/business income and expenses to report.
You'll often find answers built right into the tax preparation service. Look for a button to click on the page where you're having trouble, for explanations and additional info. If you'd like to get help from a tax professional, you might be able to connect with someone by phone or online (though that may incur extra charges). A few online tax preparation services have in-person options if you get stuck and want a tax preparer to take over or just want to go over your return face-to-face.
The good news is that your tax preparation service will likely have a robust detection method for uncovering any errors you may have made. Of course, it can't tell if you entered the wrong numbers for your income, but if it spots anything obviously wrong you'll get a notification and a prompt to review that part of your return. If you file your taxes and later realize there was an error, you can file an amended return.
Getting an audit notification can be scary! Depending on which tax preparation service you use, you might have audit support and guidance built into your package. Some services also offer full audit representation for an additional fee.
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