For many years, I prepared and filed my own taxes. I’ve only been paying someone else to take care of my taxes since tax year 2007. In many cases, there is no reason to pay someone else to handle your taxes if the situation is relatively simple and you can handle the paperwork on your own.
Back when I prepared my own taxes, e-File wasn’t the big deal it is now, and I had to mail in my hand-written forms. Now, the IRS makes things even easier for those who self-file. It’s possible to use fillable forms online, and you can e-File right from your own computer.
Here’s how to tell if you should file your taxes on your own:
You are Eligible for the 1040-EZ
There’s a reason that this form is called “EZ” — it’s easy to file. The 1040-EZ is meant for those whose income is pretty straightforward, and that does not exceed a certain (relatively low) amount. If you are filing as single, or married filing jointly, you can use the 1040-EZ form with ease. Just fill it in, and send it along.
This is a form meant for those whose situations are very simple. You shouldn’t have much investment income, and you shouldn’t be itemizing deductions or making deductions for IRA contributions or student loan interest deductions. The 1040-EZ is ideal for students (who aren’t yet repaying student loans) and for those who have traditional jobs that pay a solid middle class wage.
Here are some key points about when to use a 1040-EZ:
- $100,000 or less in taxable income
- No dependents or large deductions
- The taxpayer is under 65 and not blind
- Interest Income is $1500 or less
- No self employment income
- No adjustments to income
- Only credit you want to claim is the Earned Income Credit
- Taxpayer does not recieve alimony
- Not required to file a Schedule D for capital gains
If you qualify for the 1040-EZ, there is no reason to pay someone to prepare your federal tax return. You are likely eligible for the Free File program from the IRS, and should take advantage of it.
Your Finances are Pretty Simple
Even if you don’t file for a 1040-EZ, you might still have pretty simple finances. Back when my home business was a sole proprietorship instead of a Limited Liability Company, I still prepared my own taxes. If you have a simple side business, and can fill out the Schedule C without too much trouble, and if your itemized deductions on Schedule A are limited to charitable contributions and mortgage interest deductions, you can probably fill out your own tax forms.
A few simple investments, such as IRA contributions, or income from interest, are also easy to report as part of your taxes. With a little help from the IRS web site, you should be able to manage pretty well. You might even be able to mostly prepare your own taxes with help from tax preparation software. It might cost money, but it is usually still less than paying an accountant.
When to Hire Someone
As soon as your finances become more complex, it’s time to hire someone to prepare your taxes. My business requires that I file business tax paperwork as well as individual paperwork. Additionally, I often have investment tax harvesting to deal with, and there are other situations that make my finances more complex. If you find yourself increasingly frustrated, and if you need to buy increasingly expensive versions of tax prep software to get all the forms you need, it might be worth it to just hire an accountant.