Monday, January 21, 2008

How Will You Do Your Taxes?

There are three ways that I know of to do taxes. You can do them completely by yourself, with an IRS guide and a 1040 form, use a program like TurboTax or go to an accountant. I have used all three. I will tell you when and which have gotten me the most money back from Uncle Sam.

When I first started doing my taxes, I did them myself. I was divorced, had a child, was going to school, and working full time. I did make use of Earned Income Credit for a couple of years, but those first few years I really had no idea what I was doing. I didn’t claim any of my school expenses, I didn’t claim daycare, in fact I probably didn’t get half of the money back that was coming to me. Unless you are studying to become an accountant, or are single with no children… I don’t suggest this method.

Then there is the TurboTax route. First you have to pay for a program. It is pretty easy to use, but some of the things in it I still didn’t understand. You still have to know a little about taxes to make it give you your full refund. For example, the year I used it I was still a college student. Since I had told the program that, it asked me for all types of college documentation, but I still didn’t know what it meant. My husband wanted to go to an accountant that charged $100 to do our taxes, but I thought I could save us $75 doing it this way. He kept pushing me to go to the accountant. I had figured up our refund which looked really good, but in the end, before I finished it, we went to the accountant.

Wow, imagine that, MY husband suggesting a smart financial move. He had had his done by a professional for years and I had looked back on his old taxes and seen that she had gotten him some deductions that I had never heard of and that were not in my “computer accountant’s” list of questions. I was a little upset at having spent around $25 for the TurboTax program then turning around and spending $100 on an accountant… but it actually increased our tax return by over $1000!! I couldn’t argue with that. Even with the cost, we still got an extra $875 more than we would have with TT, and I knew that it was all legal, etc. I have never gone back to doing my taxes myself or wasting money on any of those programs. I think this method is best for anyone with dependent children, going to college, or who have extra businesses on the side.

In the end you have to decide what is best for you. If you owe money, Turbo Tax is probably the way to go because it is less expensive than hiring an accountant. However, I also like the fact that now when we go in it takes very little time because most of our info from the year before is the same. And, again, if you are single without any investments, kids, or college expenses you can probably do them for the cost of a stamp by yourself.


Simple Tam said...

Jen, I am glad I came across a tax blog. I was thinking of writing one myself. As a single person with no dependents, TurboTax / doing my taxes myself would seem like the most logical option. This is my first year at a job and upto now, I was doing my taxes using TT at school. Yet, I find many of my work colleagues (also in their first year at work) going to accountants or online agencies like H &R block (mixed reviews online). Considering April is still a distance away, I am still in the process of reading online reviews on these agencies. What are your thoughts ?

Jen said...

I really think you could probably save yourself some money by doing them yourself. Otherwise, I would find a small place that does them locally. I don't know why, but H and R block, etc. have always rubbed me the wrong way. Plus, with our case, we have really gotten to know the lady who does our taxes and we trust her. She has been doing them for 5 years now for me. I think national places have a higher turnover rate, so no telling who will be doing them from year to year. So you can probably wait on an accountant, but you may also want to go ahead and start a relationship with one now.