Doing Your Own Taxes for Dummies

[GreenSheep]

Please give me a second facepunch if there's already a thread on this and I missed it. (The first one was for not doing my own taxes in the first place.)

After paying our accountant $1100 today for doing our 2021 taxes, now that our financial life has calmed down, I'm determined to do it myself next year. I made excuses in past years for not doing it myself... still had a business, sold a house and bought another one, moved to a new state, etc. But we're really out of excuses for next year's (2022) taxes, so I want to start looking ahead. We just have my husband's W2 income plus the usual index funds, Roth IRA, 401(k), etc. that most Mustachians have. I suspect there isn't a much simpler tax situation in the US.

So... where to begin? I see several mentions of TurboTax here, as well as FreeTaxUSA, if I'm remembering that one correctly. I'd like to hear more about the pros and cons of those and any others people might recommend, as well as any tips for a newbie. Collecting the paperwork is easy for me. I'm organized. It's just a matter of getting over the fear of missing something which means either giving the government free money or risking having the IRS hunt us down to get what we owe them. But if I don't do something about this, then I'm definitely losing that $1100 per year!

[reeshau]

Whatever tool you pick, try doing 2021 right now.  Just don't file.  You know you have all the documents.  You have a 1040 to check your answers.  And next time will be a lot simpler!

I have used H&R Block for a long time.  I'm used to it.  I avoided TurboTax for a number of years, even though I use Quicken, because Intuit experimented with intrusive license management (aka spyware) with it.  That's old news, but it helped set my habit.

There are others out there, for sure.

[terran]

Agreed, try doing your 2021 taxes now then see how they compare to what your preparer did. If you don't understand something they did then read the instructions for that form/line.

[MustacheAndaHalf]

While I second both of reeshau's points, I've finally bought TurboTax this year (after using TaxAct for years, then H&R Block until they had the same bug two years in a row - fixed both times, but poor quality control).

Another reason to run your taxes with tax software this year: you can compare against what your accountant has done.  Do they reach the same result?  Where do they differ, and why?  You might also learn how to fill in your taxes better, by making sure you're producing a similar return as that your account created.

One thing I like about TurboTax is the long list of brokerages that it supports.  It can automatically import 1099s (dividends, interest, stock sales) from many brokers.  I tend to have a lot of 1099-B (stock sales) which are annoying to enter manually.  You might want to compare TurboTax's list to those of other tax software.

[Watchmaker]

Back when I was allowed to do my taxes* I used H & R Block for many years, and then switched to TurboTax for four years (I don't recall the reason I switched, but it wasn't any huge issue with H & R Block, probably just to save a few bucks) and both are absolutely fine for a simple tax situation like you'll have. Honestly, I think you'll be surprised at how easy the whole process is.

*When I became a shareholder of my current company, I was required to have our corporate accountants do my taxes.

[MDM]

We just have my husband's W2 income plus the usual index funds, Roth IRA, 401(k), etc. that most Mustachians have. I suspect there isn't a much simpler tax situation in the US.

So... where to begin?

The various software tools already mentioned are probably worth the cost, especially if you get one of the Black Friday deals, purchase through Costco, etc.  One does run the risk of "Garbage In, Garbage Out", however, so it helps to have at least a basic understanding of how taxes work.

To get such an understanding - especially for a situation such as yours - grab a pencil and go to Form 1040, U.S. Individual Income Tax Return.  Print Form 1040, then read the instructions and use the W-2 and any other tax form (e.g., 1099-INT, 1099-DOV, etc.) you received to get the numbers you need.

After you have used all the tax forms you received, keep going through the rest of Form 1040 until you reach the end.  Then look at the Form 1040 the accountant provided and reconcile any differences.

If you post back here with questions like "my 1099-xyz form has ____ so I thought line _____ of Form 1040 should have _____ but the accountant entered _____" it's likely that people will be willing to venture suggestions.  Good luck!

[markbike528CBX]

If you can do Excel (via Excel or LibreOffice etc), and don't want to enter stuff on the Internet, try:

https://sites.google.com/view/incometaxspreadsheet/home/download

It is good as a check, but I don't use it for real tax filings.
It is a little opaque on how the calculations are done, so it is difficult to see what it means to do or how it does it. (Online stuff is too so there is that).

Nevermind.  It has sections that are password protected, and is annoyingly un-useful.

[MDM]

If you can do Excel (via Excel or LibreOffice etc), and don't want to enter stuff on the Internet, try:

The case study spreadsheet is not password-protected, should one be interested in something like that.

[GreenSheep]

Thank you all for the advice. I'll definitely be doing my homework!

[SeattleCPA]

Thank you all for the advice. I'll definitely be doing my homework!

I agree with the advice and suggestions given above.

One minor tweak to something @terran said. I think he maybe misspoke when he referenced your 2021 return. That's the return you'd be doing or your preparer would be doing now. I think what he meant was go back and redo your 2020 tax return using 2020 tax software...

Also for what it's worth, I can't imagine it makes much difference which tax software program you use. I think they're all pretty dang good.

For context: My CPA firm prepares, gosh I don't know, 500-600 tax returns that are too complex for TurboTax or similar products?

Also just to say this again... I think most people should DIY their taxes with a software program. You only need to outsource you tax accounting when you have complexity you can't handle yourself using something like TurboTax. Also, IMHO, it's not your income that effects the DIY-able-ness. It's the complexity. Someone with a 7-figure W-2 may be able to DIY just fine. Someone with a "merely" upper-middle-class income may need a really good tax accountant.

[terran]

One minor tweak to something @terran said. I think he maybe misspoke when he referenced your 2021 return. That's the return you'd be doing or your preparer would be doing now. I think what he meant was go back and redo your 2020 tax return using 2020 tax software...

No, I meant the 2021 return, but I think you say that for the same reason I suggested doing the 2021 return. GreenSheep says they've already paid their preparer to do their 2021 return and want to do it themself next year, so if they do their 2021 return now then they can compare to what their preparer comes up with and learn how to do their taxes with the training wheels this year so they're ready to do them on their own next year.

[SeattleCPA]

Okay. Got it @terran.  Sorry.

Upon re-reading @GreenSheep 's original post, I think he or she probably meant the 2020 tax return prepared in 2021.

The 2021 1040 returns have only been prepare-able for a week or two. (In our office, we've only done three. Mostly we're still grinding through entity returns... and will be for weeks.)

[BikeFanatic]

Also something I don’t hear much about is TurboTax and H and R block will do several returns. I believe HAndR offered 5 returns per software purchase, and this is what I read last year. So this year I plan on doing mine then sharing the software.

[GreenSheep]

Okay. Got it @terran.  Sorry.

Upon re-reading @GreenSheep 's original post, I think he or she probably meant the 2020 tax return prepared in 2021.

The 2021 1040 returns have only been prepare-able for a week or two. (In our office, we've only done three. Mostly we're still grinding through entity returns... and will be for weeks.)

I meant 2021, like I said: "After paying our accountant $1100 today for doing our 2021 taxes..." We've been working with our accountant for years and trust him, so we pay him in advance, and he gets ours done before those who pay later. If we were just now paying him for our 2020 return, that would be terribly late.

[SeattleCPA]

Okay. Got it @terran.  Sorry.

Upon re-reading @GreenSheep 's original post, I think he or she probably meant the 2020 tax return prepared in 2021.

The 2021 1040 returns have only been prepare-able for a week or two. (In our office, we've only done three. Mostly we're still grinding through entity returns... and will be for weeks.)

I meant 2021, like I said: "After paying our accountant $1100 today for doing our 2021 taxes..." We've been working with our accountant for years and trust him, so we pay him in advance, and he gets ours done before those who pay later. If we were just now paying him for our 2020 return, that would be terribly late.

OK, Sorry. :-(

[ZaraThustra]

Contrarian view:

This point has been made by prior posters, but your situation appears easy enough to at least consider doing a rough draft in hardcopy. Doing so will allow you to have your 1099s, the W-2, and other forms ready to go to run through one of the commercial softwares.

The 1040 booklet and instructions are generally available for free at your local public library, along with your state booklet. The various schedules and instructions are printable on irs.gov. For next year, there's an irs.gov "withholding calculator" in name, but in practice actually would allow you to predict your tax liability with decent certainty (too much to type -- but it has data inputs for estimates of cap gains / other non earned income, in addition to W-2 income).

I've done my taxes for free, aside from mailing costs, in hardcopy for my entire adult life. It made me not a tax expert, but an expert on my own individual tax liabilities. I got it down to being able to predict my tax liability within a few hundred bucks come early December, which gave me enough time to overfund my withholding on my last few paychecks in case of big cap gain years.

Sadly, my old fashioned method is coming to an end not by choice, but due to IRS backlogs, and extreme delays in processing paper returns due to the pandemic. But, that's another story for another time.

[ZaraThustra]

Thank you all for the advice. I'll definitely be doing my homework!

Also just to say this again... I think most people should DIY their taxes with a software program. You only need to outsource you tax accounting when you have complexity you can't handle yourself using something like TurboTax. Also, IMHO, it's not your income that effects the DIY-able-ness. It's the complexity. Someone with a 7-figure W-2 may be able to DIY just fine. Someone with a "merely" upper-middle-class income may need a really good tax accountant.

Funny you say that! I have a doctor friend, first year as an attending -- all earned income. Her taxes are likely easier than anyone posting here. Just a matter of scaling, which can be intimidating.

[Cool Hwhip]

I have been using a professional in the past as I thought my rental property made the return complicated. I just prepared and filed my taxes myself yesterday and used Free Tax USA. The software was easy to use and walked me through all the steps. I had the same financial situation as last year so I used last year's return to compare before I filed. Looked like everything was correct. I just saved about $500.

[FLBiker]

Agree with the advice here.  I always did my taxes myself (first via hardcopy, then H&R Block) until we moved to Canada (2020).  Now, I have an accountant do it until things settle a bit more, and I'm comfortable with all the crossborder stuff.  I do both my US and Canada returns along side him using software, though, as a way to learn how it works.

[windytrail]

Contrarian view:

This point has been made by prior posters, but your situation appears easy enough to at least consider doing a rough draft in hardcopy. Doing so will allow you to have your 1099s, the W-2, and other forms ready to go to run through one of the commercial softwares.

The 1040 booklet and instructions are generally available for free at your local public library, along with your state booklet. The various schedules and instructions are printable on irs.gov. For next year, there's an irs.gov "withholding calculator" in name, but in practice actually would allow you to predict your tax liability with decent certainty (too much to type -- but it has data inputs for estimates of cap gains / other non earned income, in addition to W-2 income).

I've done my taxes for free, aside from mailing costs, in hardcopy for my entire adult life. It made me not a tax expert, but an expert on my own individual tax liabilities. I got it down to being able to predict my tax liability within a few hundred bucks come early December, which gave me enough time to overfund my withholding on my last few paychecks in case of big cap gain years.

Sadly, my old fashioned method is coming to an end not by choice, but due to IRS backlogs, and extreme delays in processing paper returns due to the pandemic. But, that's another story for another time.

Same. I did my taxes hard-copy for years before realizing it was taking much longer for the IRS to process my return rather than using tax software. Particularly infuriating was when, last year, the IRS demanded that I pay an extra $800 for supposedly finding undisclosed income in 2017...without providing me any proof, and no way to speak to anyone about it over the phone. Not wanting to get involved with litigation, I just paid the ransom money. Assholes.

Now I use Tax Slayer which is pretty cheap and seems to work just fine.

[zolotiyeruki]

I always do my own taxes with paper and pencil.  It helps me better understand how everything is calculated and what sorts of optimizations are available.  This year, our return includes itemized deductions, a form 8283, a schedule 3, an 8812 for the kids, and a few worksheets, since we have capital gains distributions, lots of kids, and an increasing income.  It's still not bad.

My poor teenage kids, though, worked part of the year as 1099's, which means they have to do schedule 1, schedule 2, schedule C, and schedule SE.  I've promised them that next year will be better, when they're W-2 only :)  We still did it with hard copies.

[merula]

I volunteer as a low-income tax preparer through the IRS's VITA program. It's actually pretty easy if you have a barebones understanding of how taxes work (as I think many mustachians do), there's pretty good training, and in all honestly the actual tax prep services are 80% data entry and navigating a web form, which is out of reach for a lot of people the program serves. Also, if you volunteer you can do your own taxes through the program!

There are a few under-publicized tax options that folks should know about, particularly people who do paper and pencil (@ZaraThustra  @zolotiyeruki): https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free.

IRS Free File - anyone under AGI $73k can do free taxes through a partnership between the IRS and some for-profit companies (not the big 2, but stuff like TaxSlayer, who is also the provider of the VITA software, and who I would recommend)

IRS Free Fillable Forms - essentially the same as paper, but online. You have to pick the forms you need and complete most of the fields manually, but it does do some basic calculation for you (like totaling up a column). Available for any income level. This is what I used before I started volunteering and it's definitely within reach of anyone who has been doing paper and pencil and can use a computer. (Easier than doing the fillable PDFs that I have to do for state taxes because my state doesn't have an equivalent.)

[SomedayStache]

Contrarian view:
Sadly, my old fashioned method is coming to an end not by choice, but due to IRS backlogs, and extreme delays in processing paper returns due to the pandemic. But, that's another story for another time.

You could still do your forms on paper - then transcribe to the IRS Free Fillable forms (https://www.irs.gov/e-file-providers/free-file-fillable-forms), this is simply an electronic way to fill out the equivalent paper forms. Then you get to keep your 'manual' approach, yet still file electronically.
-----
My personal approach has changed throughout the years. I was a manual entry/paper form person for years. Then I switched to the IRS free-fillable forms (but I would do a duplicate data entry Turbo Tax to check my results - as TurboTax doesn't charge you until you actually file so I could make sure all my final numbers matched).

When Credit Karma came on the scene I started using that - because it allowed me to see the actual IRS forms as I filled out my return (unlike TurboTax which only shows you the high-level numbers and not the filled-out forms until you pay $ to them). I guess I'll give CashApp a try this year because they bought out Credit Karma tax.

[zolotiyeruki]

Hmmmm, I may have to give this newfangled Free Fillable Forms thing a try...

EDIT:  Did it this morning, filed with no issue.  Definitely a step in the right direction!

[merula]

When Credit Karma came on the scene I started using that - because it allowed me to see the actual IRS forms as I filled out my return (unlike TurboTax which only shows you the high-level numbers and not the filled-out forms until you pay $ to them). I guess I'll give CashApp a try this year because they bought out Credit Karma tax.

Beware, I found an error in Credit Karma's software a few years back, trying to do exactly what you're doing but getting a different result. It turned out it forced you into one path for cash income, when there are a few methods. I think they're probably fine if you've got "normal" taxes, but it made me nervous enough to stop using them as my checking software.

[SomedayStache]

Beware, I found an error in Credit Karma's software a few years back, trying to do exactly what you're doing but getting a different result. It turned out it forced you into one path for cash income, when there are a few methods. I think they're probably fine if you've got "normal" taxes, but it made me nervous enough to stop using them as my checking software.

I also found an error in the way Credit Karma handled an edge case with HSA accounts a few years ago - but I was able to catch it because they show the entire IRS form and I could follow the logic and see they were choosing an option I didn't want to choose. I contacted customer service and they sent out a software fix.

I have been a VITA (Vounteer Income Tax Preparer) before and one of the years I prepared taxes for that program a fellow volunteer caught an error near the end of the tax season in the official software used nationwide by the VITA volunteers.

My takeaway from these experiences is that errors can happen, errors are bound to happen, and having a basic understanding of your particular tax situation and the ability to do your own sanity checks is the best way to alleviate concerns.

[merula]

I have been a VITA (Vounteer Income Tax Preparer) before and one of the years I prepared taxes for that program a fellow volunteer caught an error near the end of the tax season in the official software used nationwide by the VITA volunteers.

Oooo, I want to hear what the error was! (/tax nerd)

[SomedayStache]

It was about 6 years ago so it's a bit fuzzy - but I think it was literally just an error in the tax table calculations for a certain income level. Very minor error but still an error.

[MustacheAndaHalf]

If the situation windytrail describes happens to someone else, look up "TAO", taxpayer advocate office, and take things up with them.  They were created to help keep the IRS a bit more honest.

I received one of those postcard audits where the IRS claimed I owed them a nice sum, or hadn't done 1099-B correctly.  I think I did a same day sale of stock, so the tax was already paid, but I needed to fill out 1099-B to show the cost basis and proceeds were about the same.  Naturally the IRS assumed it was fresh money they could tax.  So in that case, I filed 1040-X, to amend my return, and that shut them up.

If you filed by hand, after double checking for accounts you missed, you could buy tax software and run the numbers through there.  If their numbers were slightly different but better than the IRS conclusion, you could file 1040-X with the tax software (might require mailing?), and let the IRS respond to that.

Finally, many years ago I downloaded my tax records from the IRS itself.  Very, very educational.  They round off every dollar amount, which I didn't know until I saw it for myself.  I assume if I follow their method my taxes will come out more like their calculations.  But you might be able to use that same mechanism to find out what income they think you owe, and compare it to what you calculated.

And for me, I found it interesting to read several books on IRS audits.  Might not be for everyone, but I got the worst audit of all... not the ones asking for money about one area... a "survey audit", where they look at every single form in your taxes just to see what taxpayers are doing.  It's much more involved, and requires sitting with an IRS auditor going over your taxes.  Luckily no problems for me, so maybe I made the rest of the taxpayers look better by being part of their survey, many years ago.

[AMandM]

I'm another who did our taxes on paper for years, through graduate school, job changes, and international moves. I switched to software to save myself the trouble of doing the calculations by hand, and when I did, I discovered that the ease of calculation makes it very easy to try out alternatives. E.g., we can only itemize on our state return if we itemized on the federal return, but it's a breeze to try it out both ways and see which gives the lowest overall tax burden. Plus, the speed of e-filing is great. I would not go back to filing on paper because of the IRS backlog. I have a friend whose 2020 paper return has not yet been processed.

I use H&R Block Deluxe, because it's what I'm used to. Having done my returns by hand for years, though, does give me the confidence to dig deeper into the forms themselves (the software makes this easy) when necessary.  A while back it had a bug related to a provision about certain scholarships and I figured out the workaround, so I stuck with it as the devil I knew. It costs about $30 on Ebay and includes five federal e-files and one state program, which is all I need since we are not eligible to e-file our state return.

[GreenSheep]

I lived in the US Virgin Islands for a year, and everyone warned me to make sure, if possible, that I didn't have a tax refund coming to me, because it takes years to get it. I did end up having an unavoidable refund, and it did take years. I thought that was an "island time" thing, and it's sad to see it happening on the mainland, too.