One of the two certainties in life, so they say, are death and taxes.
In my short life, I have had way too many interactions with governments. I’ve been detained by the US customs, waited for hours in lines at US immigration offices, read hundreds of documents of boring legal mumbo jumbo about applying for a work permit, applying for temporary residence, applying for conditional permanent residence, applying for a travel document, and applying for citizenship. I say all of that to say I’m the first guy to outsource anything to do with government paperwork.
Do Your Own Taxes With Turbo Tax or Use a CPA?
I think that most people are smart enough to file their own taxes and will save a substantial amount of money over their lifetime by filing their own taxes. If your taxes are simple and you could even consider doing your own taxes so you can file free federal taxes. Here are two of the biggest ways doing your own taxes saves money:
Save money on tax preparation fees
When I used a tax accountant I paid about $250.00. The most recent Turbo Tax program I purchased cost $75. Therefore, each year you could save $175.00.
Save money by getting real life tax training
You will save money by having a clue about deductions and the general way taxes work. No one knows more about your tax situation than yourself. Your tax liability is determined by how much tax you paid and specific life situations like: how many kids you have, how you spend your money, who you give money to … The first year I did my own taxes I noticed a lot of areas I could be saving money. For example, I started tracking all my ministry related book purchases. Furthermore, I realized some of the fees associated with my schooling were also deductible – if I kept better records. The tax accountant can only ask a certain number of questions. You, however, (if you learn to file taxes) will know what questions need to be asked. Tax planning is so much easier with a little basic knowledge.
How To Establish A Tax Plan For This And Future Years
Step One (Year #1) – Use A CPA AND Do Your Own Taxes (with a program like Turbo Tax)
Yes, your tax preparation fees will cost more this year. But, only thinking about today can be a costly financial decision. If you have never done your own taxes you will learn more, much more, with that $75 (to purchase tax software) than any other $75 you have spent.
For the last five years or so I’ve used the Turbo Tax program and have never had any problems with their program.
The common problem with outsourcing financial responsibility is this – out of sight, out of mind. Outsourcing perpetuates financial ignorance. If you don’t know today and you outsource, you still won’t know tomorrow.
Disadvantages of only using a tax CPA
You drop off your paper work with the accountant. Pick it up. Drop it in the mail and you have no idea of the accuracy of the documents. Furthermore, you likely won’t have any idea of good tax saving tips for the next year.
However, when you prepare your own taxes you force yourself to learn tax rules that later you can apply to your own situation.
For example, the first year I filed by myself I finally learned what what a ‘standard deduction’ was. I thought I got to claim the standard deduction plus any additional deductions. I would never have known the truth if I didn’t force myself to learn by doing.
My Tax Filing Experience
When I started my first full time job I felt intimidated by the prospect of doing my own taxes. The ministers salary can make for a complicated tax season. Before working full time my finances were simple enough I could prepare and file everything by myself. But, now it seemed like there were too many moving parts.
I got a recommendation from a friend and dropped off all my paperwork at an accountant’s office.
A few weeks later the call came and I picked up up the papers and took them to the Post Office. It was a cinch and I was convinced I would pay for the luxury of outsourcing my tax work in the future.
Then I got a letter.
Mr. Ford, we want to inform you that there was a miscalculation on your return. Instead of getting “x” dollars back you should (and will) be getting “x+$1,600”. My tax person made an error to the tune of $1,600. If the IRS didn’t catch it, I would have been out that money.
Had I followed the advice I’m giving you today, I could have gone to my accountant and asked, “Why are you getting “y” when I’m getting “x”?”
Step Two – (Year Two and Following): Choose based on your preferences
Did you like the convenience of someone else doing your own taxes? If you did, then drop off your return at the accountant’s office. Now, with your experience of doing your taxes you can take the paper work home and review everything, because you now know what you are looking for and what each number represents.
Are you still feeling nervous about doing it yourself? Repeat the same process again – complete it yourself and have a tax accountant complete it also. Have someone prepare your taxes, but do it yourself at the same time. After two years of practice you might be ready to do it on your own.
Or my personal favorite – save the preparation money and do your own taxes until there is a significant change in your tax situation. Tax filing is a cyclical process. While your income might change, your income will still be entered on the same line of your tax papers. While your deduction amounts may vary, they will still be entered on the same lines on the tax form.
Once you’ve done your taxes once, you can now do it yourself.
However, if you have any significant changes to your personal or tax situation you should go back and repeat step one (tax accountant and do it yourself) to be sure you properly understand how those changes impact your tax situation.
Do you prefer to file your taxes by yourself or hire a professional? Why?