It wasn’t that long ago when doing taxes was a pretty daunting task. It required reading a big boring booklet, or at least parts of it, examining every line on every form, filling in numbers by hand, adding, subtracting, and calculating percentages. And in the end you still could not be absolutely certain you did everything right. Given that Americans tend to fear both the IRS and math, there weren’t that many brave souls who did their own taxes.
Over the last 10-15 years, as personal computers became less and less expensive and more and more powerful, so did the Tax Preparation software. These days to prepare your own taxes you need to simply pop in a CD, available at any office supply store, and the computer will hold your hand every step of the way. It will ask you questions and provide explanations in almost plain English, do all calculations, and even check the completed tax returns. Anyone with reading comprehension level beyond middle school and ability to accurately copy numbers from one place to another should be able do their own taxes, at least up to a certain degree of difficulty.
One of the most obvious benefits of preparing one’s own tax return are cost savings. If your Adjusted Gross Income under $57,000, you can prepare and file your tax return for free on the IRS website. If you have to buy the software, even the most expensive version with the most bells and whistles still runs well under $100 for both Federal and State. And you can use it to prepare multiple tax returns if you have, for example, two unmarried partners, or working teens, or you want to help your parents out. This can mean hundreds of dollars worth of savings.
Another advantage is control. Everything is in your own hands. You don’t have to worry about a temp your accountant hired for the season mistyping your numbers or losing a few receipts. You don’t need to be concerned that your social security number and other essential information can wind up in the wrong hands as a result of extra copies being tossed out instead of shredded, a computer not having the right protection, or a memory stick getting lost. Of course, that means you need to make sure you type the numbers in right yourself and adequately protect your information, but at least you have that option.
Are there any drawbacks to doing your own taxes? Well, if all you’ve got is a couple of W-2 forms, not really. Especially if you don’t make that much money and a tax saving investment, like an IRA, is not an option. Your tax will be the same no matter who or what prepares your return. And if a preparer tells you otherwise, he is not being honest either with you or with the IRS, on your behalf.
The more complicated your situation is, the higher the probability that without professional help you might make mistakes or miss opportunities to minimize your tax burden. The software is not clairvoyant, it only knows what you tell it. So, if you miscalculate basis of an investment or forget an expense, the computer won’t know the difference.
Another disadvantage is the amount of time you might have to spend to prepare your tax return. And while a DIY job of painting your room may actually be fun, doing taxes – not so much.