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The Benefits of Doing Your Own Taxes

Sunday, February 5th

The Benefits of Doing Your Own Taxes

Let's face it: no one claps their hands for joy when tax season rolls around every year. Not only did most of us never learn a thing about taxes in school, but we're all equally confused by the ever-changing rules and regulations of the IRS.

Some of the tax-related questions that many people ask include:

  • Can I deduct my charitable contributions? If so, how much?
  • Do I get a tax credit for my minor children this year?
  • How much should I have paid in estimated taxes?
  • What counts as income?

If you feel a sense of dread as April 15th approaches, you're not alone. But, unless you want to face late penalties, audits, and maybe even jail time, filing a tax return is a must. Should you do it yourself or hire a professional? Most Americans - to the tune of over 71 million taxpayers annually - prefer to take the DIY approach. Why?

First of all, it is expensive to pay someone else to prepare your tax return. Even a simple return - say, one for a young adult with a simple W-2 paycheck, no investments, no property, etc. - will often cost at least $100 when working with a professional. Did you know that a basic return like that can be filed online for free with many popular tax software programs? Even if your tax situation is more complicated, with self-employment taxes or gains and losses from investments, the right tax prep program will walk you through every aspect of your return and prompt you to enter the corresponding information. Why spend $500 or more for an accountant when you can get your taxes filed for around $120 for even the most complex individual tax return?

Second, using tax preparation software keeps your return on your own terms. Want to get your taxes filed the minute the IRS opens for returns? Want to wait until the last possible minute? You can do that if you're preparing your taxes yourself; good luck finding a tax preparer that will work under either of those parameters! Especially as it gets closer to the filing deadline, you may have a hard time getting someone to take you on as a client, or you may have to pay extra for last-minute service. Most tax preparation options online let you fill them out and file them 24/7, at your convenience.

Similarly, preparing your own tax return allows you to maintain more privacy. Do you want to explain to another person why you donated lots of money to a ladybug rescue organization? Or why you're paying child support to five different people? There's no shame in either of those things, but taking a DIY approach to filing your taxes guarantees you won't wind up in a conversation about them either.

Finally, taking matters into your own hands with tax preparation can give you insights into your financial situation that you might miss if you're handing over your return to someone else. Many people are surprised to see how much certain actions affect their refund or their amount owed as they answer the prompts and enter the information in the software program. How much do your donations to non-profits actually impact your taxes? Is it better to donate items to a charity than sell them? What effect do your capital gains (or losses) have on your taxes? Preparing your taxes offers a window into your finances that you can use to make changes for the following year: increasing or decreasing your investments, rethinking decisions about buying and selling property, and so forth. You may even time the birth of a child to be more advantageous tax-wise!

Of course, preparing your own taxes could leave you more open to errors. Fortunately, such mistakes can usually be avoided by choosing a reputable tax preparation software program: one that asks thorough questions and provides detailed explanations of each question to make sure you understand well enough to answer accurately. Many providers include options for asking questions or getting help from a professional, if you try it yourself and get stuck: the best of both worlds!

With the right tax prep platform and a little bit of time, your return can be filed quickly, easily and, best of all, for much less money than hiring an accountant.

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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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