Since everyone is in a different financial situation, it can be difficult to know if filing your own taxes is a good idea. To further complicate matters, individual finances change with the tax laws. What worked last year may not be the best option for your current situation.
If your tax situation is uncomplicated and you are comfortable using the software, you may be able to file your own taxes. However, major life changes may dictate the need to hire a professional. Here are some general guidelines to help determine the best option for you.
A Straightforward Tax Situation
Preparing your own taxes can be a time-consuming process, even for those considered tax savvy. You should only attempt to prepare your own tax returns if you have a simple and straightforward tax situation. This will help minimize the possibility of making mistakes or submitting an incorrect return.
A simple tax return is used by individuals who do not own a business or intend to itemize deductions. These individuals typically do not have any significant assets or investments that must be claimed on their return, including real estate. There are no dependents for them to declare, and the standard deduction is their best option.
A 1040EZ is a simple form often used to file uncomplicated tax returns. If your tax situation is straightforward, you can often file your federal taxes for free. However, there is usually a charge to file the state taxes even if they are self-prepared.
The good news is that using tax software minimizes the work involved by prepopulating subsequent forms.
If you are filing your own taxes, it is important to choose your software wisely. You can prepare your taxes by hand, but the software is often more reliable.
The tax software you choose will guide you through the filing process and help ensure that your return is prepared correctly. In many instances, your tax software can affect the size of your refund or your ability to get one at all. The most reliable programs will also save you time and aggravation.
The great thing about utilizing software is that it is expected to be up to date on all the tax law and form changes. Many times, you can also purchase an audit guarantee. The software allows you to see how entering different numbers impacts the calculations at the end.
Using the right software will give you the confidence and peace of mind that your taxes have been filed correctly. It can also save you quite a bit of money over hiring a professional.
Tax software can often be purchased at a discounted rate, such as the discount offered to members of GCEFCU. The amount paid for tax filing software is also a deductible expense when you file your taxes.
Hire a Professional
Those who have a more complicated tax situation are often better off paying a professional to file their taxes. This typically applies to those who have substantial earnings, assets and investments.
A professional understands which tax laws apply to such items and which forms must be filed to claim them properly. They can also determine whether it is in your best interest to itemize deductions for the current year. For instance, the standard deduction nearly doubled for 2018.
Changes to the standard deduction amount coupled with additional changes to itemized deductions may make itemizing less attractive in some situations. However, if you own a business or side business, then you may need to itemize.
A tax professional can help determine the best approach for your situation and minimize your total tax liability. They will also consider any major life changes that may directly impact your tax liability. Getting married, buying a house or having a child are all considered major life events that have significant tax implications.
What works for you may not work for someone else in a similar situation.
Aside from the necessary tax software, you should also consider your schedule and current obligations. Filing your own taxes requires a considerable amount of time and patience, even with the right software.
If you do not have a quiet place to get this task done or access to a computer, it may be in your best interest to hire a professional. The price you pay for a professional to file your taxes is deductible, and it may be worth your sanity.
If your situation is straightforward, then you can probably handle things yourself with the right software. Just be sure to utilize any available discounts when purchasing the software and minimize distractions until you are finished.