Doing your own taxes seems to get harder every year. It seems like there’s little reason to try to struggle through the process when inexpensive tax preparation services pop up like mushrooms this time of year and there’s even free software available online.
The Tax Code is Tough, Not Impossible
I’ve done my own taxes on occasion. These days, though, I don’t dare to try to go through the whole process without an accountant handling the tough parts. I simply don’t have enough time to spend on learning the details of every bit of tax preparation — although my situation is a little more complex than other folks’ might be. I have a company of my own, with income coming from several different sources. Let’s just say that I was very happy to be able to hand over the headache of preparing my taxes to someone else.
Even though my accountant does the hard work, I still study the tax code, though. Most of the material on the IRS website is written so that you don’t need an accounting degree to puzzle through it. I sit down regularly with my accountant to discuss changes to the tax code and how they’ll impact my tax return. I probably still could make it through most of my tax return correctly if I absolutely had to.
Honestly, most taxpayers don’t have as complex a tax situation as I do. Provided that you work for an employer who withholds payroll taxes from your check each week, doing your own taxes can just be a matter of checking if you qualify for tax credits, such as those that go along with paying college tuition. There’s a reason that there’s software available to do taxes these days — for the average taxpayer, a piece of software can walk you through the process fairly quickly.
Taxes Are Your Responsibility
If something goes wrong with my tax return, it’s not a big deal for the tax preparer. There are some cases of continuing hanky-panky where an accountant got busted — but for most tax issues, it’s the taxpayer who will wind up talking to the IRS. While that’s not necessarily an argument for sitting down and doing your own taxes every year, it’s a very good argument for being able to at least understand the basics of your own tax situation.
It’s not a particularly simple situation — trying to read up on some of the more obscure tax deductions can lead directly to a migraine — but it is something that is important if you want truly secure personal finances. Going through and doing your own taxes once or twice (and I don’t mean plugging some numbers into software) is the best way to really get a handle on what goes into a tax return. You can, of course, read up on credits, deductions and rules that affect you, but that isn’t quite the same.
Personally, I believe that doing your own taxes at least once can be an incredibly educational process — even if it is a difficult proposition. After all, if you haven’t prepared a tax return, it’s tough to ask the right questions to make sure your tax return is completed properly. That means a mistake can creep through, costing you money (and interest if it isn’t caught soon enough). There’s even jail time at stake with big enough problems — think about all of the celebrities who have had to go to court, despite claims that their accountants were supposed to have taken care of everything. No one wants to wind up in that situation.
So, Should You Do Your Taxes?
At the end of the day, there’s no real requirement to do your own taxes — provided you are comfortable reading through your final tax return and understanding what you see. It’s hard to argue that most people should be as up to date on the tax code as a professional tax preparer or accountant. But, given that you are ultimately responsible for your own taxes, you do have to be sure that who ever does your taxes gets it right.
Staying informed about your taxes has another benefit, as well. The more you know, the more that you can take advantage of deductions and credits to bring down the amount you’re actually paying to the government every year. If you don’t stay informed, though, you simply won’t have the knowledge necessary to take advantage of such opportunities.
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The biggest problem for planning tax saving expenditures is not knowing how to plan. Sure CPA’s are supposed to accurately report how much is your tax bill but in 2o10 a CPA prepared (supposedly) my tax return. However, after I received information from IRS advising my return for that year did not report the hanging fruit of RMD! Although he had been filing my return from his office since I became 70 1/2, he claimed I “did not provide RMD information”. Therefore, it was MY fault. He also asked “if you wanted to file an amended return. Later, I learned that his error resulted in a State penalty when the IRS
provided information to the State as to the RMD error. So much for trusting the professionals. (Those years I assumed a CPA and his $270 fee insured that my return would be done accurately.)
Of course I went to a EA the following year 2012 who charged $230 and cleared up the STATE mess, which might have been handled by an amended 2010 return.
I’m going to do my own return, 1099R and one stock 1099B this year.
What source other than the complicated Tax Code is available in re the various credits (QRMD and rebates) available? It’s too late to take those deductions when you file a return by 4/15 of the following year.
I agree with MoneyNing. For simple income source with usual itemization, one can easily prepare taxes. But slightly more complex situations require expertise…more for peace of mind. I was forced to rent out my home when I moved for a new job. I then sold this rental home. Both situations, I attempted to use TurboTax as well as tried to figure things out manually. Man, the IRS language is confusing. Extensive googling was also of no help. Noone seems to have exact or somewhat similar situation like mine. I didn’t want the risk of making a mistake so got a CPA. My only gripe is how much he is costing me. He charges $200 per hour. So for last and this year I paid $675 each. But looking at the returns, I doubt if I could pulled it myself. BTW, I have a PhD in Engg and am fairly competent in math but navigating various tax codes is not that simple I felt.
I do taxes as a volunteer for low and moderate income people. If you have a realitively simple return and can use software, by all means do it yourself. If you are uncomfortable, have a complex situation and/or can’t afford software, get help. It really is a simple decision. Maybe paying someone a few years will give you the knowledge to go it yourself.
There are very tricky situations even for low income. For instance not all income qualifies toward EITC. When in doubt, ask.
Persons who should do their own taxes are children who can file 1040-EZ. It gives them practical perspective on how taxation works and the beginning of an understanding of the concept of progressivity in taxation. NB: to the guy named Murrell who referred to President Obama as . . . Well, I shan’t repeat it here. You, sir, are a punk with a limited vocabulary. I must ask it you are related to “Cpt.” John Murrell, murderer, thief and pirate?
If your primary source of income are wages from employment, and your investments are limited to things such as stocks, interest bearing accounts, etc, then you really should try, at least once, to do your own taxes rather than fork over $150 or more to have an H&R Block or similar service do them. Software like Turbotax is maybe $50 and walks you through everything, especially if the majority of the info you will need to report on your return will come from a government form (W-2, 1099 for investment info, 1098 for mortgage info, etc).
I say this as a CPA with many years of experience. My practice deals with corporate work and high net worth individuals who have complicated tax situations and need professional assistance.
Don’t forget that the IRS website has a lot of information and offers downloadable publications that are fairly “plain English” and can provide a lot of answers to common tax questions. You also can call the IRS to get your questions answered – your tax dollars pay for this service, so you should take advantage of it.
I really appreciate Mr. Shackleford’s insights. I am 66, started working when I was 16, and have done my taxes by myself in all but 2 of those years. I do have a math degree, but the IRS forms are usually clear. What befuddles many people is that they don’t know where to put what. Reading the instructions will answer that. One year, because of a rather large withdrawal from retirement funds, I had to calculate the Alternative Minimum Tax ($0.00, thankfully), but even that “detour” was fairly straightforward. As a general rule, I don”t use computer software. I have been IRS audited once, and once I made a mistake on a state tax return, and received no refund that year. If people are patient with themselves, anyone can do it!! Laws give us 2 1/2 months to file, and there are extensions if needed beyond that. Do I like taxes? ABSOLUTELY NOT!! ESPECIALLY WITH OBAMA BIN LADEN IN THE WHITE HOUSE. There is another thought: An individual SHOULD know his/her finances better than anyone else; therefore, it seems only logical to me that the individual should do his/her tax return, using software programs if necessary. God gave humans 2 things that no other life form has: a soul and a MIND! WE NEED TO USE OUR MINDS TO HIS HONOR AND GLORY, and remembering Jesus’ statement about giving Caesar what’s his, and God what’s His, to me it seems an inescapable conclusion that we should be involved in our own tax preparation. Besides, by the time a person would get all the necessary info together to give to an accountant, he/she would have already done all the spade work!! We need to give ourselves credit for having the skill to read and understand. One other thought: Who knows YOUR finances better than yourself??!!??
ummmm….
you dont even think of doing your taxes without an accountant to handle the ‘tough parts’??
HUGE LOLs @ you iTard…..do you know how to count??
that comment, then followed by “even though my accountant does the tough parts but i still study the tax code….”
that has to be one of the dumbest things i’ve read in quite awhile….your first comment shows you are inept and dealing with simple counting and finances…..so there’s no way in the world i belive you study the tax code….
you are clearly lazy, gullible and incapable of doing simple math tasks.
SpiderMan,
Please explain whether you can deduct the interest paid to a broker for operating a margin account. How much can be deducted and under what conditions? You clearly know the answer as this is just math, right?
Actually margin interest is a can of worms unless it is done properly at the beginning of the year, not after the tax year is over. I have a 4 page report from a CPA firm that details the potholes.
This can be done by anyone who has practiced doing their own returns. Using tax software usually gets margin interest not deducted unless dividends are fat. I pay my margin interest by check monthly and deduct it against my dividends at the end of the year. Even so, there are a lot of areas that prevent you from deducting margin interest such as if used to purchase munis.
I have yet to have a problem with my margin interest deductions but that does not mean it will always stay that way.
My biggest beef with using a tax-preparation service is that they have no incentive to save you money. The one time I tried to use H&R Block, they always had two answers to everything:
1. Yes, that is taxable.
2. No, you can’t deduct that.
They minimize their risk, maximize your tax bill, and pocket a nice fee for filling out the forms.
I’m for doing my own taxes, for a couple of years I had someone else do them, and I realized I could save a couple of dollars and do them myself.
scratch your own itch as what I usually say to my relatives. Calculate your own taxes and do not let other people do it for you. You’ll grow old depending on them. And doing it yourself, will let you know, that you are a tax-paying citizen.
Tax Planning is most important for every salaried as well as for a Business owner. Investing in Tax Saving Mutual Funds is a better option to save tax, only concern is that in that case there is some lock in period for your tax saving investments.