There is just under a month until your taxes are due and so the advertisements for various ways to do your taxes are everywhere. We asked some of our tax experts how they do their own taxes.
Dan Caplinger: Believe it or not, there are still some people who essentially do their tax returns by hand. I moved away from using paper forms several years ago, instead using the fillable forms that the IRS provides. But when it comes to figuring out which forms to use and how to get the right numbers in the right places, I do my own legwork and take full responsibility for double-checking my own work.
It's true that preparers and software can make doing your taxes a lot easier. Yet if you don't know how your tax-preparation software or professional actually came up with the numbers that show up on your return, then you'll be at a complete loss if someone questions a position that you've taken. Doing your own research about what deductions and credits are available not only gives you a stronger sense of what you've done on this year's return, but it also helps prepare you to do a better job of managing your taxes next year and in future years to come.
If you can afford to pay someone to take on the extended responsibility of managing an IRS audit or other inquiry into your taxes, then that's fine. For me, though, I'd prefer the extra upfront work in order to put myself in the best position to avoid that much-larger hassle down the road.
Dan Dzombak: Usually I do my own taxes using TurboTax and this year that is my plan. If your tax situation is simple I think it is good to go through the process and do a checkup of your own finances. Not to mention, many retail preparers just walk you through the same steps TurboTax does anyhow.
Last year was an exception for me. Instead of doing them myself, I hired a CPA who specializes in taxes. I did so because my tax situation was more complicated than normal. In my opinion, this is the best reason to get professional help with your taxes.
My situation was that I left full time employment half way through the year, worked as a freelancer for some time in Washington, D.C., and then moved to New York City and continued working as a freelancer. Filing W-2's and multiple 1099's for the first time for federal taxes as well as in two states and two cities seemed like a recipe for messing something up. Now that I have gone through the process of filing as a self-employed person and have lived in New York City for a full year I will be doing my taxes on my own this year because I only have to file in one state.
Asit Sharma: I spent the early years of my career as a CPA preparing personal and corporate taxes for a local firm. This instilled in me a bean counter's desire to understand the schedules I file, and like Dan Caplinger, I still prepare a few by hand, on paper, before plugging everything into my favorite software (TaxAct Online).
If you also have a do-it-yourself attitude, but find your taxes becoming more complex, I'd like to pass on a potentially useful tip.
When I worked as a preparer, I observed that a couple of events seemed to mark a threshold which caused taxpayers to abandon TurboTax and entrust their total return to us. First, a life event may have caused a taxpayer to form a trust during the year. In another instance, to take advantage of a real estate or entrepreneurial activity, a taxpayer may have launched a partnership which required a year-end return.
The above are situations where the difficulty certainly escalates, but guess what -- you don't have to turn over your entire return to an expert for the next several years.
Rather, engage a CPA firm to prepare and file your trust or partnership return only. In your completed package you'll receive the K-1s that contain the summary information to be plugged into your favorite tax software. This strategy lets you tap into the value of professional help where you really need it, while saving hundreds and potentially thousands of dollars in tax prep fees over the years as you continue to file your own 1040 and related schedules. And in a truly complicated year, you can always ask your CPA firm to file the whole ball of wax -- as Dan Dzombak did above in his year of work change and relocation.
Dan Dzombak has no position in any stocks mentioned and also writes about success in life. Asit Sharma has no position in any stocks mentioned. Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Intuit. The Motley Fool owns shares of Intuit. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.