4 Questions to Ask Before Filing Your Own Taxes
Thinking of filing your own taxes? You have company. By March of last tax season, the IRS reported that over 27 million American taxpayers had filed their tax returns online from home.
Filing your taxes on your own is easier than ever with programs like TurboTax (INTU) and TaxACT. But before you file your own taxes, ask yourself these four questions:
1. Do I Qualify for Free File?
Free File is a program launched by the federal government to give certain people access to free, online tax filing tools. Typically, Free File is a good tool if your taxes are relatively simple – say you've worked one job, and you'll take the standard deduction.
Under this program, if you made under $60,000 in 2014, you can use free tax prep software from big-name companies. You may even be able to file your state taxes for free. If you made more than $60,000, you can get free forms you can file online. The forms do the math for you, but they only offer basic guidance. You won't be able to use the software for your state taxes.
2. If Not, How Much Will a Tax Filing Program Cost?
Even if you don't qualify for Free File, you can still get a good deal on tax preparation. Services like TurboTax let sole proprietors file small business taxes for $80. That's still less than it will cost you to hire a tax professional. However, if you can find a decent tax preparation service in your area that won't cost much more than that, you might want to consider hiring someone, instead.
3. How Much Time Do I Have?
There's a reason no one loves April 15. Filing taxes can be a real headache, especially if yours are complicated. If you own a business -- even a side gig that doesn't net you many write-offs – or if you've itemized your taxes, you'll need time to file your taxes.
Unless you're really organized throughout the year, you have to pull together receipts and information. And if you have multiple 1099s or W-2s, you have to get all those together, too. All of that has to be done before you can actually sit down and do the filing paperwork.
Altogether, you can expect to spend at least half of a perfectly good Saturday filing your taxes. Again, this isn't to say you shouldn't do it yourself. But you need to think about the opportunity cost. How much do you miss out on while spending time filing your taxes, and how much is that worth to you?
4. Do I Know All the Tax Credits, Deductions and Rules?
Now, again, if your taxes are relatively simple to file, good tax software can walk you through most of the relevant tax credits and deductions. But, as the latest H&R Block (HRB) commercials assert, you could miss out on money if you file your taxes on your own.
When you do your taxes on your own – especially if you try to file without the assistance of step-by-step software – you run the risk of missing out on money that could add to your tax return or lower what you owe. This is especially true for freelancers and small business owners. It's easy to forget to write off business mileage, the costs of your home office and other relevant expenses if you have a small business.
On the flip side, it's important to understand rules about deductions you can't take. If there's a chance you'll run awry of the IRS, it's best to leave it to the professionals. Complicated deductions have complicated rules, and you need to ensure you get everything on paper correctly or risk an audit.
However, it's not worthwhile, obviously, to pay someone $200 to save you an extra $100 on your taxes. So you just need to decide how complex your taxes are going to be, and make an educated decision as to whether or not you can handle most of the credits and deductions yourself.
None of this is to say that you, personally, should or should not do your own taxes. In some situations, it's a no-brainer. If you make less than $60,000 a year and have a couple W-2s and no mortgage, use Free File. But if your taxes are more complex, deciding whether to file on your own, use paid software or hire a professional is just a judgment call.