The Low Down on Filing Your Income Taxes
Taxes season is here!!! We've worked hard through 2019 and now those "important tax information enclosed" envelopes are showing up in our mail. What are we to do with them? I hear ya. This year will be my first filing for taxes as a #divorcee. In my former life, we filed jointly with TurboTax. I didn't have much involvement other than signing my name and dating the page. When I file taxes for 2019, I'll need to factor in child support, spousal maintenance, jobs and whatever else is supposed to have a section. I didn't think twice about how I was going to get this done; I need professional accounting help. On the regular, people either choose to e-file their taxes themselves or pay a CPA or professional tax preparer to do it for them.1 So, how are you going to file your taxes this year? Let's break down the two most popular ways of tax filing and find out what best fits your situation.
Gather all necessary documents
What you need to file your taxes will depend on your specific situation. H&R Block features a thorough printable tax preparation check list.2
Here are some things to consider gathering (trust us, it'll make your life easier):
- Personal Info:
- Social security or tax ID number
- Spouse's social security or tax ID number
- Dependent Info:
- Dates of birth and social security or tax ID numbers
- Childcare records (including the provider's tax ID)
- You'll need their personal info and childcare records. If you share custody of a child you may need Form 8332 which is the Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent form.
- Sources of Income:
- Last year's refund amount (if you itemized last year)
- Bank or other financial statements
- If you contributed to an IRA you'll need Form 5498
- Paying down student loan debt? You'll need Form 1098-E
- Did you take out a mortgage? You'll need 1098 Mortgage Interest Statement
- Any Form 1099's - Common ones listed below
- 1099-MISC if you are self employed
- 1099-G if you received money or benefits from the government
- 1099-DIV if you received dividends
- 1099-R for distributions from a retirement plan
- Other misc. income records (award money, gambling winnings, lottery payouts)
- Self-employment records
- Business expenses
- Mileage records
- 1040-ES quarterly estimated tax payment receipts
- Rental income
- Medical expense receipts and records
- Charitable donations
- Property tax receipts
Filing Option 1: File your taxes yourself
Are you going to file your taxes yourself? If so, most people will choose to e-file online through programs like TurboTax, H&R Block and LaserLink. By using a computer program you can electronically deliver your tax information directly to the IRS.3 The IRS almost instantaneously receives your filing, there's less chance of human error, and if you're anticipating a refund you'll likely get it sooner. Sounds pretty great, right?
I can see why doing e-filing yourself is so popular! With this in mind, I asked some co-workers about their personal e-filing experiences and what they liked and disliked about them. I mean, aren't we all looking for quick and easy steps to find out if we're getting a refund?
Free filing for federal and state taxes
TurboTax allows customers to file their 2019 taxes for free, if you have a simple tax return. This is the 6th year in a row that they've offered the TurboTax Free edition. So if you plan to file taxes yourself, it's worth seeing if you qualify.
Denisse took advantage of this opportunity! She said, "Free federal and state filing is the reason why I started using TurboTax in college! They offer this at the beginning of the year and it's only for a limited time, so I file as soon as possible."
Easy to understand
TurboTax boasts an easy step-by-step process, tips and hints perks and helpful definitions. With all that, my co-workers found this filing option hard to mess up. Jamie agrees that the process is easy. She responded, "I would DREAD doing taxes myself if I didn't use TurboTax. I feel like it is extremely user friendly and very easy to follow."
This personal e-filing method makes sure to keep you focused on the information in front of you, so as not to stress you out.
Joe appreciates the convenience of TurboTax, too. He shared with me that, "The user experience is simple and not overwhelming, presenting only one area of focus at a time. It carries over my data from year to year which saves a lot of time and effort."
Mobile device friendly
Don't we all live on our phones or tablets? TurboTax makes filing easy since you don't have to tether yourself to your computer.
Denisse stated, "I've only ever used their (TurboTax) mobile app on an iPad and it's great! It's easy to navigate between pages. In past years, I would simply take a picture of my W-2 and the information would populate on the screen."
Secured personal information
With more and more of our personal information being consensually thrown into cyberspace, we most definitely want to keep it safe.
"They (TurboTax) have multi-factor authentication to make sure that it's really you who's accessing your account," said Denisse.
It takes time
Though the process was developed to be as pain-free as possible, it still takes a good amount of time to work through, not even counting collecting all the information you'll need.
"In the past I've put it off until the deadline was approaching - it's not a short process, so going through it in a time crunch is no fun at all," offered Joe.
Complicated situation? This may not be for you
If you have some tricky or complicated financial situations to cover, personal or business-wise, you may not want to take on tax filing all on your own.
Stacie concluded, "We have always used TurboTax, but this year we are going with a CPA tax guy. Not sure all the details but my husband said that we have enough going on besides our jobs (rentals and owning a roofing company) that we need help filing this year."
Filing Option 2: Use a CPA or tax preparer
According to Nationwide.com, more than half of U.S. taxpayers chose to hire a professional to do their taxes. Traditionally, you can hire either a Certified Public Accountant (CPA) or a tax preparer. Though they both can do your taxes, their education and experience are likely to be very different.
Certified Public Accountant (CPA)
- Highly educated
- College degree
- Completed Uniform CPA exam
- 120 CPE (Continuing Professional Education) hours for each three-year reporting period
CPAs are not only educated in tax preparation, but are highly skilled in a variety of accounting aspects such as, financial planning, investment advice, and risk management.
- At least 18 years old
- Basic IRS exam
- 15 hours of annual tax education
Tax preparers will most likely be less educated than CPAs. They don't need to have any exceptional credentials to work on your taxes, but their focus is specifically on tax preparation. So if you have a complicated tax situation, you may want to go straight to a CPA.4, 5
The tax professional you choose to complete your taxes should have a PTIN (Preparer Tax Identification Number) and it should be listed on your tax return forms.6
My co-workers who chose to go the CPA/tax preparer route were equally jazzed about their decision as the personal e-filing peeps. They recognized the lower stress, ease, convenience, and guaranteed correct results as big pros when dealing with taxes.
Trust it'll be done right
By having a trusted professional do the work for you, you can be guaranteed that the information entered is correct.
Megan responded, "For me, it's the peace of mind knowing it's one less thing on my plate to try and juggle and possibly screw-up. As long as I gather all the pieces he (CPA) needs up front, I don't have to worry about anything else!"
Easy, with lower effort
If you don't want to work through all the tax info yourself, or you just don't have time to do so, a tax professional can help!
Scott confirmed these views and added, "For the past several years we have been using a CPA, she is super sharp, and it's great because we don't have to do anything besides show up with our documentation."
Knowing that the CPA is trained and educated in this type of work can lessen the load of stress on you and your family.
"Personally, I've always found it just a little less stressful if I can take it to someone who specializes in this area," stated Megan.
If your situation isn't simple
Everyone's tax situation is a little different - or a lot different. If you have a complicated situation or doing taxes just isn't in your wheelhouse (all eyes on me!), a tax preparer or CPA can save you a lot of hassle.
Erin has a more complex tax situation being a single mom with joint custody. She contributed, "I use a CPA. Since having (my son) and the rules around claiming him every other year (switching years with his dad), it is so much easier for me to use a CPA."
Need an appointment
If you choose to go the CPA route, you obviously can't just do your taxes when the mood strikes. You need to research or ask around for tax professional suggestions, if you don't already have one in mind, and then make an appointment. Those CPAs are going to be busy, so it may not be the most convenient timing for you, but hey, your taxes will get done!
It's not cheap
If you're looking for the most inexpensive way to file taxes, it won't be with a CPA or tax preparer. You're paying for the convenience and the expertise. But to many, it's totally worth it.
"The easier it is to get it (taxes) done, the better - somethings I am willing to pay a little more for. This is one of those things," concluded Erin.
How you choose to file your taxes is completely up to you and depends on your situation. I hope that I've given you some helpful information that'll make for smooth sailing through your tax season!
1Staff. (n.d.). Three Ways to File Your Taxes. Retrieved from Nationwide: https://www.nationwide.com/lc/resources/personal-finance/articles/how-to-file-taxes
2Staff. (n.d.). Tax Prep Checklist: What Do I Need to File My Taxes? Retrieved from H&R Block: https://www.hrblock.com/tax-prep-checklist/what-do-i-need-to-file-taxes/
3Staff. (n.d.). What is E-Filing? Retrieved from H&R Block: https://www.hrblock.com/tax-center/filing/efile/what-is-e-filing/
4Staff. (n.d.). Choosing the Right Professional Guidance. Retrieved from Gamburg CPA PC: https://www.gamburgcpa.com/cpa-vs-tax-preparer/
5Motley Fool Staff. (2016, March 1). What Are the Difference Between Accountants vs. Tax Preparers? Retrieved from The Motley Fool: https://www.fool.com/knowledge-center/accountants-vs-tax-preparers.aspx
6Orem, T. (2019, February 14). 7 Tips to Find the Best Tax Preparer Near You. Retrieved from NerdWallet: https://www.nerdwallet.com/blog/taxes/how-to-find-best-tax-preparer-near/