Should I Do My Own Taxes?

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This post was originally published in April of 2017. Here is the new and improved version!

Ugh…it’s tax season again, and you may be wondering should I do my own taxes?

Tax season sucks.

Even if you’re getting a refund, tax return prep is still a giant drag because you’re either 1) paying someone big bucks to file your return for you or 2) paying smaller bucks for tax prep software and spending a full weekend sorting through W2’s and 1099’s and 1098E’s. And which of those options is the right one for you? Should you do your own taxes? Or should you pay a tax pro to handle it for you?

In this post, we’re answering the every-spring question: Should I do my own taxes?

Why are tax returns even a thing?

I was so confused by tax returns when I first started working and paying taxes! Like, I’ve been paying my taxes all along through my paycheck deductions, so why is this process necessary? The government knows how much I make and how much I’ve paid in taxes, so why on earth do I need to send in a bunch of forms showing them what they already know?!

Interestingly, (well, for finance nerds anyway), the US is pretty much alone in this process. Almost every other comparable country does what teenage me would expect. They withhold a certain percentage from employees’ paychecks for income taxes and send a report of income and taxes paid to individuals once a year. I’m currently living in Germany and enjoying this stream-lined system. I don’t even have to file a tax return here! But I’m paying like 40% in taxes, compared to around 20% in the US, so, you know…

Side note: if you’re curious about the cost of moving abroad, check out How Much Does It Cost to Move Abroad?

Anyway, instead of those other countries’ cool automated systems, we Americans have an amount withheld from our paychecks that could be way more than the taxes we actually owe, or way less. And once a year, we have to report our income and deductions to the government and see how off our actual paycheck withholding was. Deductions, btw, are tax breaks for things like student loan interest or real estate taxes you paid; there are about a million deductions available – more on that later. If your withholding was too little, you owe a bunch of money by Tax Return Day. If your withholding was too much, you get a tax refund.

Side note: tax refunds sound like a good thing, but they’re not. A refund means you were paying too much each paycheck. That’s money you could have been using for better things all along! Instead, you basically loaned the government money all year long, and they didn’t have to pay you any interest on this borrowed money! Boo…

Legit reasons for our stupid filing process

Ok, so why doesn’t the US save us all a lot of time and trouble and just do what the rest of the world does? Well, there are a few surprisingly legitimate reasons for our stupid tax return process:

US tax law is way too complicated for a simple system to work. US tax law has evolved over time into this monster of random deductions with seemingly arbitrary min and max amounts. Even if the government wanted to calculate all of this for you, it would cost too much in taxpayer money to pay government employees to do this.
Many of your deductions are based on numbers the government doesn’t know. Like your business expenses or charitable donations.
The tax prep industry is huge. About $11 billion a year huge! Those companies and tax prep pros would be out of jobs if we simplified our system, so a lot of them aren’t really pushing to simplify.
There is concern that people can’t trust the government to calculate our tax amounts correctly. Let’s say we do what the rest of the world does and just have the government handle all the calculations and send us a statement once a year. How closely would you really check that statement? Would you gather your income and deduction documents and do your own calculations? Or would you treat it more like your phone bill and just glance-and-forget?

So, yep, this is our system, and you have to file your tax returns.

So should I do my own taxes or hire a pro?

First, you should know that anyone can do his or her own taxes. You don’t need to hire someone.

In fact, if you have a really simple tax return, you may even be able to file online through the IRS website for free! Check here to see if you qualify. With recent tax code changes, this is a legit option for many of us because the process has been somewhat simplified and more people now qualify for this free option. Yay!

Now, if you don’t qualify for free online filing, Turbo Tax is a decent, relatively inexpensive DIY option. It walks you through each step of your return, asking you specific questions to see if you can take advantage of any of those deductions we mentioned earlier. I personally used Turbo Tax for years and found it fairly user-friendly.

My only issue with Turbo Tax is that it doesn’t know enough to ask you all the relevant questions to find all your deductions. When J and I bought our first house, we decided to take the plunge and find a tax pro to see if they could save us money on our taxes better than Turbo Tax. We compared Turbo Tax with H&R Block and a private C.P.A. (Certified Public Accountant) recommended by a colleague.

Here’s what we found:

Tax Return Provider	Cost of Service	Amount of Tax Refund	Net Money in My Pocket
Turbo Tax	$50	$150	$100
H&R Block	$280	-$300	-$580
Private CPA	$340	$560	$220

Turbo Tax did ok, finding us a $150 refund, so after paying the $50 to buy Turbo Tax, we came out $100 ahead.

H&R Block surprisingly terrible! I don’t know if this was a fluke (if you’ve had a good or bad experience with them, let us know in the comments!), but they were the worst option for us. They calculated that we owed $300, and they wanted to charge us $280 to file. We would be losing $580 going with them!

To their credit, they did let me walk away and use another servicer without paying once they told me how much it would cost and how much I would owe. Sure, I feel bad that they did the work of reviewing all our income and deduction docs, and for free since I didn’t pay them for it. But come on, I’m not paying them that much to tell me I owe money when other reputable sources are saying I should be getting a refund.

Then, our most expensive option, the private C.P.A. (whose name I won’t mention because he’s not currently taking new clients)… $340 sounds like a lot of money to pay someone to do your taxes, but he found deductions no one else was asking about. J is in video game design and because his games, game systems, and graphic novels are all required for industry-related research, they are all legitimate business expenses! So they are legit deductions. Turbo Tax didn’t ask about that! Neither did H&R Block!

This C.P.A. costs more than the other options but got us a large enough refund to cover his fees and then some. In fact, since we bought a second house, and complicated our tax return with rental properties and international income, his fee increased to $530. Never thought I’d pay so much for a tax return! But every year, he finds the deductions Turbo Tax can’t, so we come out ahead. And I’m thrilled to pay him the fee he clearly earned 🙂

Summary

Here’s how to answer should I do my own taxes?:

If you’re at the beginning of your financial life, the IRS’s free filing system might be right for you. The biggest problem with this system is that it won’t help you find all your deductions, so you may be paying more in taxes than you need to. But with the increase in the standard deduction, many people don’t need to itemize deductions anyway. And if you don’t have substantial deductions (no real estate, student loans, medical expenses, dependents, etc), the free system will get the job done.

If you have relatively minor deductions (like student loan interest and moving expenses), and income under the government limit, you can still do your own taxes for free through the IRS.

If you have relatively minor deductions (like student loan interest and moving expenses), but your income is over the government limit for free IRS filing, Turbo Tax is a fairly inexpensive, easy-to-use solution.

Now, if you have more complicated deductions (real estate, business expenses, medical expenses, dependents, etc), it’s probably worth your time to try a tax professional. Here’s how:

Check Yelp or Google Reviews to find a well-reviewed C.P.A. in your area.
Call early in the tax season before they are swamped to see if they’ll do a free consultation. They might not, but they should be able to at least tell you how much their services would cost based on your income and deduction situation.
Ask upfront how their fee works. Like, if you aren’t happy with their calculations, do you have the option to go with someone else, or do you have to pay them for their time?

You might have to take a risk here. H&R Block was cool when I told them I had to go with another provider that would save me money, but smaller C.P.A. Firms might not be ok with that. You have to choose if you want to take the risk that you might pay for their services and pay in to the government for additional taxes owed. If you end up not being happy with them, there’s always next year to try someone new!

Whether you file on your own or hire a tax pro, we wish you the best of luck on your tax return filing!

Should I Do My Own Taxes?