DIY Taxes


Talking with friends and reading articles that appear in the media around this time of the year it’s hard not to conclude that people hate doing their own taxes. Most prefer to simply outsource this task to a CPA and move on to the more important things in life. Never mind that those “important things” routinely include watching several hours of TV per day. I must be in a minority here as I look forward to sitting down in March and filing our taxes. (Pssst… there is a link for a free copy of TurboTax Deluxe Federal and State with Efile at the end of this post).

My DIY tax history spans close to two decades now. In the beginning life was simple where a one-page 1040EZ covered me at tax time. No property owned, standard deduction, W2 income under 100K, no dependents, single… I never even had to pay to use TurboTax since Intuit provided their Free edition – no surprise here – free of charge. No doubt they were hoping to keep me as a customer as my tax situation got more complicated so they could sell their services later. It worked. Once your information is in TurboTax there is a strong incentive to stick with it.

First of all,  last year’s information is already there and gets automatically copied into current year. As you enter this year’s numbers you are always prompted to compare it to the prior year which helps to speed up the process as well as make sure that nothing is missed. Year over year comparison is a useful feature as well.

Second of all, there is a lot to be said about the learning curve associated with using other tax preparation software. One year I decided to try TaxAct, which is cheaper than TurboTax, but I spent a long time learning to navigate a completely different layout. It’s no surprise I felt that TurboTax was more intuitive and went back.

As my tax situation got progressively more complicated I had to start paying for appropriate versions of TurboTax. Free Edition no longer cut it so I switched to Deluxe. That worked for a while but with an investment property I had to go up to Premier. After forming an LLC I had to upgrade to Home & Business. At that point I figured I might need professional help and got a referral for a local CPA that my friend in a similar financial situation used.

I made an appointment and went to meet the Irenas Xero Services accountant. She diligently reviewed all the paperwork I gathered and organized per her specific written instructions. She asked lots of questions. I went home and thought that’s the end of that but then I started receiving email after email asking to submit this paper and that receipt and that other bill. Several weeks later I was told that our file was finished and ready for submission awaiting my blessing… and $350. But hey, the tax preparation fee should be deductible on next year’s taxes!

I paid the bill, she filed our taxes and I received a copy in the mail. After all said and done, this experience further convinced me that it’s much better to do your own taxes even in a relatively complicated situation as my own. The accountant did not do anything wrong; it’s just not my cup of tea. Here are some of the reasons I decided to continue insourcing our family tax preparation:

  • It’s cheaper. Duh… $350 is a LOT of money to drop yearly on something that can be done yourself. Even if I spent 7 hours (I don’t) I would consider myself handsomely compensated at $50 tax-free per hour. My sister is paying $600-800 for a CPA to do their family taxes and I know for a fact that they are not any more complicated than ours.

  • It’s faster. I can finish in a couple of hours without having to drive anywhere or having to explain our finances to a stranger. I don’t have to waste time scanning documents and emailing them along with explanations and answering questions.

  • It’s easy. Considering that you have to get all the papers in order yourself even if you hire an accountant the hardest part is already done. The rest is just typing it in as TurboTax guides you from screen to screen. Software will even automatically populate year end numbers from various sources if you let it. I didn’t have to type our W2 or brokerage information – they pulled it for me. And while your first year might take longer, subsequent years are much faster since for the most part you are just updating existing information.

  • Same deductions, credits, refunds and tax liability. Despite what you hear on CPA-sponsored TV ads they won’t get you any more money back than TurboTax. Today’s software is excellent in converting complicated tax code into easy questions that lead to maximum deductions and credits legally available. Besides, your accountant uses similar software anyway.

  • What if scenarios. One of my favorite things about DIY taxes is the ability to run various what if scenarios and immediately see the impact on our tax liability. For example:

How much less will I pay in taxes if I max out my SEP contributions?

What if we donate more?

What happens if I work less to drop my 1099 income?

What if my wife stops working?

Will we be able to take itemized deductions when our mortgage is paid off?

Should I itemize my home office deduction or take the simplified one introduced in 2014?

I can do this in just a few minutes to help me plan for next year or reduce our taxes this year (SEP and IRA contributions can be made retroactively to reduce prior year’s tax liability). Good luck asking your accountant to do all this “extra work” for you.

  • Keep more money over lifetime. Insourcing taxes and going through what if scenarios gives you a totally different perspective on money than outsourcing the work to someone else. Throughout the year, I find myself looking at all financial decisions through a set of tax code goggles. Am I reducing our effective tax rate? Government taxes are one of the biggest guaranteed expenses in our lives so it would only make sense to learn as much as you can to minimize them.
  • Key to financial independence. Reading financial blogs I find that most people who are FI or close to FI insource their tax preparation. I’m not talking about Warren Buffett’s of this world but your average middle class individuals and families pursuing financial freedom. I’d be willing to bet that there is a strong correlation between doing your own taxes and achieving financial independence early.

  • Independence. Period. I can do this and so can anyone. Why do we insist on relying on professional services when a perfectly feasible alternative exists?

If you’ve always outsourced tax preparation you have everything needed to start doing it right now. Your accountant did the heavy lifting – just use the last year’s return as a template for this year! Try the tax preparation software on the market today (TurboTax, TaxAct, H&R Block) and you might be surprised how cheap and easy it has become. Even if you decide it’s not for you, the software can double check that your CPA is getting you the biggest refund possible.

Follow this link to learn a simple hack to reliably get TurboTax Federal AND State with Efile free of charge every year – no “discount codes” and no BS. I’ve been using it for a while now to efile our tax returns for free and it makes an even stronger case for insourcing your taxes.