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As a new year begins, so does a new tax season. Not many enjoy preparing tax returns, but prepare them we must. With so many variations in the tax laws, many people feel forced to pay professional tax accountants or other financial experts to prepare their returns for them. My wife and I used to spend hundreds of dollars on tax preparation services only to find that they did not save us much on our taxes. Since we learned about Turbo Tax in the early 2000s, we have prepared our own returns accurately and saved hundreds on service fees.
Form 1040 EZ
I long for the days in which I could fill out the very simple Form 1040. When single or for the first two years of our marriage, we could simply fill in our income, our taxes withheld, and a few other simple bits of information. The form took only a few minutes to complete, which made filing our tax return very easy. However, it did not allow for many deductions, but we did not have many in the first place.
Past experiences paying a professional
After we bought our house in 1997, we knew that we would have to move up to the standard Form 1040 in 1998 so we could include the mortgage interest deduction and other itemizations. This confused us the first time, and we thought we may have missed some possible deductions. Still, we received a small refund, so we accepted what we could.
The next year, we decided to hire a professional tax preparer. We figured that he could get us the most deductions and, therefore, a higher refund. It did not happen that way. He would tell us what to bring to him, so we would. Then on each subsequent visit, he would say that we needed something else. He did not tell us all at once what to bring, so we had to make extra trips to his office even thought we already had all of the forms. We took five separate trips before we had all of the forms that we needed.
We ended up getting about the same small refund. However, after paying him the $285 fee, we came out even, and that does not include the gas that we bought and burned to make all of the trips. The accountant suggested that we have less tax deducted from our pay, so in taking his advice, we turned in new W-4 forms to our employers. The next year, 1999, we ended up owing more taxes in addition to paying the accountant's fee. He said that this time we did not have enough tax deducted from our paychecks so we owed the rest right then. We readjusted our W-4 payroll deductions to the previous levels to avoid that problem again. We did not return to that accountant for a third year.
Learned how to prepare our own returns from another professional
After these two miserable attempts, we then used my parents' accountant. She charged us much less for the exact same service. She also found us more deductions, and when coupled with our readjusted W-4, we gained back our previous amount of refund in 2000. By the time we prepared the 2000 tax return in 2001, we had our son, whom we could now claim as a dependent. We used that same accountant for the next few years and started receiving bigger refunds; she charged us around $55 each time, which compared very favorably to the $285 fee from before. We had found the perfect tax expert for us! Unfortunately, though, she retired after three years. However, she told us how she prepared our returns online. She then showed us how to use the service correctly.
We now prepare our own tax returns
Since 2004, we have used online tax preparation to complete our returns very easily. Once we receive all of our necessary forms, we can complete the entire process in one afternoon and fill in all of the information ourselves. We do not have to rely on someone else to complete the return; even professionals make mistakes, but we are still responsible for them. Our new service costs us only $29.95 each time.
By preparing our own return, we save approximately $255 off what we originally paid a professional in 1998. Fees today can cost hundreds more -- especially when considering what we have added to our portfolios over the years. We also save many hours by preparing the returns ourselves and not having to wait for an accountant to complete our return as only one of many others he/she must complete. Finally, we do not have to travel back and forth between our home and someone else's office, which saves us more time and some money on gas, not to mention the wear on our cars.
Continue to prepare our own returns
Other good online tax services exist, and one day we may again feel the need to hire a professional accountant to help us prepare our tax returns. Until then, though, we will continue to prepare our own returns. We can also consult our personal financial adviser with any questions about tax matters that we may not understand. We like knowing that we can prepare our own returns in light of the confusing and ever-changing tax laws, and we will continue to do so as long as we can.
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