Why Doing Your Own Taxes is Beneficial

by Kevin on February 18, 2010

When I was growing up and working at the local movie theater my parents would take my meager tax information to their tax preparer. I never had to participate. My W-2 would come in the mail, go in the folder of tax info, and before I knew it my massive $20 refund was at the door.

Even while I was in college and working at the computer lab as part of the work-study program, my W-2 information was sent home and my parents took care of it.

It wasn’t until I entered the real world, got a real job, and had a single bedroom apartment that I paid for on my own that the idea of doing my own taxes even crossed my mind. I hadn’t needed to think about my taxes up to that point.

But I was in the real world now and it felt kind of immature to send my taxes back home so Mom and Dad could take care of them for me.

It was time to become a real adult with those amazing guarantees: taxes and death. (Woohoo!)

File Your Own Taxes

I really feel that filing your own taxes is an important step in anyone’s life. And not just because it means you are suddenly making enough money to have to pay taxes!

You Learn How the Federal Income Tax System Works

When you are doing your own taxes — that is, inputting the information yourself without any assistance — you learn how the tax system works. It doesn’t matter if you are using paper forms (God help you!) or using an online program or using boxed software you bought at a store.

The simple practice of going through the process line by line will educate you on how our tax system works.

I think that education is very important.

You See Which Deductions and Credits Saved You Money

As I go through my taxes with online software (similar to TurboTax) I get to see exactly what saved me a lot of money.

I get to learn that educator’s get a $250 deduction for qualified teaching expenses. That’s useful to me since my wife is a music teacher. Unfortunately we feel the deduction should be much higher!

I get to see how our mortgage interest brought our taxes down a bit… although I would much rather not have to pay the interest in the first place. (Why pay $1 in interest to save 25 cents in taxes?)

You Learn How Much of Your Income is Lost to Taxes

Some may find it depressing. When you look at the numbers it can be disheartening to see a large chunk of your income go to the government.

The flip side of the coin is this: at least you had enough income to justify the government acquiring some of it. (Yes, I know this isn’t much comfort.)

Doing Your Own Taxes is a Healthy Exercise

Nonetheless I feel this process is very healthy.

I’ve learned to track my income, expenses, and deductions much more closely. If in the future I decide to switch to letting an accountant do my taxes the organization of my files should come in handy.

Am I missing some important deductions? I’m not sure.

Am I making massive mistakes that will cost me thousands in penalties from the IRS? I sure hope not.

But I’ve learned a lot more about the tax system, how to file my taxes, and what the process looks like than I would if I had just handed over a packet of receipts to an accountant.

This post was featured in the Carnival of Personal Finance.

Do you file your own taxes, or do you let someone else file them for you? Leave a comment.

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Busy Mom February 18, 2010 at 11:36 am

I file our taxes. I like to see the changes and am very proactive in our financial health.

philip February 18, 2010 at 1:35 pm

I did my own taxes, and have done them for quite some time on my own. When I got my first W-2 my dad had me sit down with him and fill out the 1040-EZ just to see it all. Ended up not filing my own then because he was able to get alot more by claiming a dependent and he gave me what my return would have been 🙂 Now I do mine online and used a second online service to compare each other.

It really is interesting to see what all is asked and how all of it affects your taxes and see what you really did end up paying.

Michael February 18, 2010 at 1:50 pm

My father-in-law is an accountant (not professionally anymore), so he’s done our taxes for the past two years.

For about that amount of time, I’ve worked for a tax software company, where I have free access to our tax prep software. So this year, I’ve done a mock-up of our return and will compare it to the results he gets, then figure out what I did wrong, etc. Should be a good learning experience!

Evan February 18, 2010 at 2:31 pm

I always did my taxes until I got married, and then with all the specifics that go along with my wife’s independent contractor position, it is easier to send it all to a CPA. I still do my younger brother’s taxes for him though.

“(Why pay $1 in interest to save 25 cents in taxes?)”
You simply bypass this little nugget. Do you know how many people don’t understand or get this concept?!

Early Retirement Extreme February 19, 2010 at 5:10 pm

I do my taxes by paper. One thing it has taught me is that tax planning for investment can really pay off e.g. taking losses in December rather than January, say. The paper part simply comes from having been burned by an inadequate program once.

J. Money February 21, 2010 at 3:03 pm

I’m going to give it a shot myself for the first time ever this year! Specifically to learn just like you say.

BUT, I’m also going to have my accountant do it too (and actually file it) so I can match up the differences and see how close we got!!! This way I’ll a) see if I did well 😉 and b) not miss any deductions! Maybe you can try that one year and see if you’re on track?

Kevin February 21, 2010 at 7:20 pm

I actually plan to do that… we’re going to have to file amended returns since I missed my tuition deduction the past two years (more on that in post tomorrow). So we’ll see how far off I’ve been. Hopefull more off in our favor than the government 🙂

Golfing Girl February 22, 2010 at 4:49 pm

We do our taxes together and make note of the items that have the biggest impact and items that we miss out on so we’ll know what to do next year. It’s painful but we knock it out after the kids are asleep and do it some Saturday evening.

Megan February 25, 2010 at 8:18 am

I have a CPA who does our taxes. It’s worth the peace of mind, IMO. I think I probably could have done it myself when I was living at home, and when DH and I were first married and living in an apartment. But once you become a homeowner and have a baby, it starts to get complicated.

philip February 25, 2010 at 8:25 am

Not to single Megan out but her perception is the same that I hear from people all the time. They think that because of this or that they are unique and theirs will be more difficult. Consider the number of people that own homes and have a kid, it really is a huge majority of tax payers.

For the most part none of the people that claim all these problems have not tried to run their numbers themself in one of the programs that make it incredibly easy. It walks you through and asks every question to complete the tax forms and you really won’t miss much.

The only way that I feel it is worth it to get help is if you are a business owner because that creates way more options than most have, and more likely deal with much larger amounts as well.

I encourage everyone to at least go to one of the free sites (most will let you run all the numbers and not pay till you actually file if you have to pay at all) and run your numbers yourself even if you decide to go back to have someone do it for you.

JT in the Army March 24, 2010 at 6:11 am

You never mentioned that doing your taxes helps to educate you on the inner workings of your state, as well.
I used an online tax program because it was free for me because I’m deployed…
It didn’t know all the inner workings of my state’s tax exemptions for deployed military personnel. By going through my state’s online resources, I have learned about many state tax exemptions and deductions that are unique to me but not listed in software bundled for the common taxpayer.

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