Albert Einstein once said, “the hardest thing in the world to understand is the income tax.”
So no wonder there’s an entire industry full of accountants and tax preparers ready to take your money in exchange for help with this difficult yearly process. There are times when hiring a tax professional is absolutely necessary. And there are times when it’s not.
Do you know which side of the spectrum you fall on? Surprisingly, most people are just fine by doing their own taxes, and there are even benefits to doing so.
When Your Taxes Are Complicated: Hire Them Out
Of course everyone’s taxes are complicated. But, some people’s taxes are way more complicated than others. In that case, hiring someone to prepare your taxes for you will pay off. You’ll be able to get all the deductions to save you more money. And they’ll be able to advise you on unusual tax situations.
Here are some reasons you might want to consider hiring someone to do your taxes:
- You have rental real estate or other complicated investments;
- You have an unusual business structure;
- You’re going through a major life change (move, divorce, starting a family, etc…); or
- You’re short on time or patience.
When Your Taxes Aren’t Complicated: DIY
The truth is most people don’t have complicated tax situations. Most people are getting their money from a regular W2 job and don’t have a lot of deductions to claim. For example, the most complicated thing many people have to worry about is claiming child tax credits and student loan or mortgage interest deductions.
If that’s the case, consider doing your own taxes. You can do them by hand, but buying one of the many software programs to help you do your taxes may be more efficient. Some tax prep websites—including the IRS—let you do your taxes online for free if you meet certain qualifications.
The Case For Doing Your Own Taxes
There are two main reasons why you might want to consider doing your own taxes.
First, you’ll save money, especially if you won’t be missing out on any high-dollar deductions a person with a more complicated tax situation might miss. In 2017, a National Society of Accountants fee survey showed that the average cost of having your taxes prepared was $176 for a basic tax return with no deductions, and $273 for a tax return with itemized deductions. That’s a lot of cash you save by doing it yourself!
Second, doing your own taxes is a good learning experience. You see exactly how the numbers are calculated. You’ll understand your own financial situation a little better, even if you’re not Albert Einstein. Rather than sending off your taxes to a mysterious black box that churns out a seemingly random number, you actually see the math behind the numbers.
Knowing how your taxes work is empowering. If you know how they work, you have a better idea how to lower your taxes in future years (legally, of course) by contributing to an IRA, an HSA or making charitable donations.
You can learn how taxes work by reading up on them, of course, but that sounds about as dry as a saltine cracker. Instead, what better way to learn how taxes work—and save some money to boot—by doing your own taxes if you’re able.
The views and opinions expressed are those of the guest author and do not necessarily reflect the views and opinions of MindShift.money.
image credit: Bigstock/Igorkol