Income Tax Preparation
Advantages of doing your own taxes
Whether this is the first year you’ll be doing your own taxes, or it’s been a few years and you want to try it again, there are many pros to consider.
Preparing your own income taxes takes some time and organization, but it can be good for your wallet. The average fee for professional tax preparation of Form 1040 and a state return with no itemized deductions is $176, according to the National Society of Accountants. If you choose to itemize, that average fee jumps to $273. Paying money to learn how much you owe Uncle Sam can feel like a double whammy to your bank account.
On top of saving a good chunk of change, doing your own taxes is empowering. You can learn a lot about how the IRS tax code affects you and make good decisions to positively influence your return. Remember, knowledge is power. Pay keen attention throughout the process and you may be able to save in ways you haven’t in the past. After all, you know yourself and your lifestyle better than any tax preparer.
Finally, knowing how to do your own taxes could mean a faster refund. During the first three and a half months of the year — often referred to as tax season — accounting professionals and tax preparers are extremely busy. You could wait weeks or even months to get an appointment.
6 Things to Bring Your Accountant to Prepare Your Tax Return
As we approach the end of the year, it’s smart to begin thinking about taxes. While the tax deadline is still a few months away, the sooner you get your return filed, the less you have to worry about it. With that being said, do you know what documents you need to take your preparer? As a rule of thumb, the more information you can provide, the better. However, there are certain documents that are absolute “musts.” This list includes the following:
- Identification Information
It’s important that your tax preparer has access to certain identification information that can be used to verify that you are who you say you are. Your social security card is the best option, since your accountant will need your social security number for each member of your family.
As expert Dave Roos warns, “To claim dependents on your tax return, you will need their Social Security numbers as well as their full names and dates of birth. Every year, the IRS sends back hundreds of thousands of tax returns because the names and Social Security numbers on the forms don’t match.” You should also bring a second form of identification, which could include a driver’s license, military ID, or any state-issued picture ID card.
- Copy of Most Recent Tax Return
While you may not qualify for the same tax deductions or write-offs as last year, providing your accountant with the previous year’s return can help them easily access information and calculate certain deductions without having to call you over and over again. If you’re meeting with a new accountant, this could also be a good opportunity to discuss any discrepancies that may exist between previous tax returns and what your best approach should b
- Wage Statements
If you’re an employee at a company, you’ll receive a Form W-2 wage and tax statement from your employer. If you don’t receive this document by January 31, you may want to check with your employer to ensure there weren’t any mix-ups. Non-employees, which includes independent contractors and freelancers, should receive a Form 1099-MISC from each client they’ve worked with throughout the year. In this case, you’ll want to bring your accountant this form.
- Additional Income Statements
Did you accrue any additional income throughout the year? This may include interest and dividend income from investments, unemployment income, or social security income. You should receive statements for each of these sources of income, if applicable. You’ll need to bring these in as well.
- Real Estate Documents
There are a lot of different deductions that can be taken when it comes to real estate holdings. You should bring your accountant any documents pertaining to a recent home purchase, proof of paid mortgage or home equity loan interest, or proof of paid real estate and personal property taxes paid.
- Proof of Expenses
If you want to get your deductions and credits, it’s imperative that you hand over documentation that proves your expenses. This includes receipts, invoices, medical bills, charitable contributions, IRA contributions, job-hunting expenses, mileage logs, education expenses, self-employment expenses, and more. It’s better to bring too much documentation than too little.
Adjustments to your income:
The following can help reduce the amount of your income that is taxed, which can increase your tax refund or lower the amount you owe.
- IRA contributions
- Energy credits
- Student loan interest
- Medical Savings Account (MSA) contributions
- Moving expenses (for tax years prior to 2018 only for federal returns but your state might still allow it)
- Self-employed health insurance payments
- Keogh, SEP, SIMPLE and other self-employed pension plans
- Alimony paid that is tax deductible (Applicable to divorces finalized before January 1, 2019)
- Educator expenses
Find a Copy of Last Year’s Return
If you use the same preparer that you used last year, they are likely to have your previous information. If you use a new preparer, last year’s return can serve as a reminder to the preparer—and you—of some items you don’t want to overlook. Here are two examples:
- Interest and dividends.Last year’s return should indicate which banks, mutual funds, or other financial institutions sent you 1099 forms. Use that list to make sure you received 1099s from them again this year (unless you closed those accounts or sold the investments in the meantime).
- Charitable deductions.If you made small gifts, you may not have received any acknowledgment from the organization, but you can still deduct these contributions as long as you have a canceled check or other proof. Consult last year’s list of organizations you donated to and see whether you made similar gifts this year.
Hire a professional if:
You don’t have the time and patience to deal with it. If you feel that the significant time you’d need to devote to doing your taxes would be better spent elsewhere, you might want to outsource. It’s probably more prudent than rushing through your filing and making a mistake.
You have a complicated tax situation with dependents, investments, or significant assets or charitable contributions, or you own a business. Nearly every financial transaction comes with some kind of tax consequence, and the more transactions you have, the more things you need to take into consideration. People who own businesses, freelance, or are self-employed in particular might want the help of a professional to iron out their atypical tax situations — deductions for home offices, business meals and travel, and vehicles are also audit red flags.
You’re planning to itemize your deductions. Since President Donald Trump’s 2017 tax law increased the standard deduction, fewer filers are itemizing deductions. But if you have major medical costs, a mortgage, or make large charitable donations (among other factors) you might save more money itemizing your deductions than taking the standard deduction. But itemizing can be tricky to navigate on your own, especially if it’s your first time.
You’ve had a major life change in the last year. Did you get married? Buy a house? Have a baby? These all impact your tax filing, and, at least the first time you document them on your taxes, you might want someone to show you how best to do it.
You don’t trust yourself to cover all of your bases. If the idea of entering numbers and talking about dependents and deductions makes you break out in a cold sweat, you might want to leave the preparation to a professional.