How To File Your Taxes

There are really only three options when it comes to filing your taxes each year.

1.) Don’t file your taxes. Although this one is a real time saver in the short-run, prison can really ruin a perfectly good day. So that leaves just two options.

2.) Do it yourself. For simple situations, you could probably sharpen a #2 pencil, fire up a calculator, and complete the form yourself. Or, you could use any one of the many software programs or websites to help you. Some of these are really easy to use and do a good job completing the tax return for you.

3.) Hire someone. If doing your own tax return doesn’t sound like a good use of a spring afternoon, you could hire some- one to do it for you. There are several different types of people who could help. There are tax return preparers. Can you guess what they do? Bingo! They prepare tax returns. You give them your statements and they plug the numbers into their software, hit print, and you sign the 1040 and call it a day. Higher up the tax sophistication ladder are Enrolled Agents and CPAs. These guys and gals have a broader and deeper knowledge of taxes, and rather than just entering the numbers you give them, Enrolled Agents and CPAs, at least the good ones, can help you strategize and save taxes. How? They can recommend different options for you that might reduce your income, increase your deductions, or help you qualify for certain credits. You are hiring them for their expertise in reducing taxes, not just plugging in numbers.

So here’s the distinction:

If you want to file your taxes correctly, you can probably do it yourself with software or get someone to plug the numbers in for you. For very simple situations, that may be all that is necessary. But, for the vast majority of people and situations, it makes sense to spend the money to hire someone; not just to file your taxes correctly, but to file your taxes correctly while saving you as much tax as is legally possible.

That’s the one you want. You may spend a few hundred dollars more, but if you can save a thousand or ten thousand dollars, it is well worth it.

The takeaway?

Work with an Enrolled Agent or a CPA by default and only do it yourself if your situation is so simple that an Enrolled Agent or CPA tells you not to waste their time and that you could do it yourself.

The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.