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Tax season is upon us again. Did you know that almost 40% of American tax filers self-prepare their taxes, while 60% hire tax professionals? I found these figures shocking at first. I thought those numbers would have been reversed. But, the good news is the number of American tax filers that are self preparing is on the rise.
I love doing taxes and get really excited to do mine every year. I eagerly check my mail and online accounts waiting for tax forms so that I can file my taxes as soon as possible.
As you can tell, I am one of the 40% of American tax filers that self-prepare. I just completed my taxes this past weekend using Tax Act. I should be getting a small refund this year, which is perfect. Every year, I try to get my refund as close to zero as possible, and it’s almost become a game to me. The closest I ever got to zero was when I received a refund of $112 last year. Needless to say, I was slightly bummed when I didn’t beat my record last year, but I’m not going to complain too much.
I have friends that think trying to shoot for a zero refund is incredibly dumb, as they love getting huge refunds. I know a woman that gets a refund in the tens of thousands every year. When I asked her why she does it, she said there’s no better feeling than having the government owe her five figures. Now don’t get me wrong, I’d love to receive a fat check from the government. But, I’m not interested in giving the government an interest-free loan for a year in order to get it.
I would rather get a smaller refund so that I receive a little bit in my check each month to invest using dollar-cost averaging into the S&P 500 rather than a year later. So each year after I get my refund, I check my W-4 to see if it still makes sense. Otherwise, I readjust my withholdings to reduce my refund.
Some may have no idea what their withholdings should be. That’s not a problem. The IRS has a great IRS Withholding Calculator, which will quickly let you know what they should be. Then once you alter things with the HR person at work, you should be good to go.
I’m not brand-loyal when it comes to tax software. Basically all the tax software programs do virtually the same things these days. So I’ve used Turbo Tax in the past, along with HR Block, and now Tax Act. I usually check out whatever is on sale through Slickdeals and then buy the tax software program. This year, I was able to purchase Tax Act on sale, but next year, I will use whichever is cheapest.
I’ll freely admit that my taxes aren’t very difficult at the moment. I have to file my W-2s from work, my bank interest on my Schedule B, some dividends on my Schedule D, and then some charitable deductions along with property taxes on my Schedule A. I know I lost a couple of you there, but it’s really not that difficult, especially with how easy it is to use tax software today. However, I didn’t always use to be this way.
A Big Tax Mistake
When I graduated from college with a degree in finance, I had no interest in trying to file my taxes. My Dad graciously did my taxes for the first two years after college. I was clearly a bit lazier then than I am now.
When I bought my first house after college, I tried to do my taxes on my own for the first time. Unfortunately, since I had never really taken the time to understand my tax returns in the past, I made a huge mistake.
Mortgage Interest Deduction
I was renting out the house to three other guys while living there. When I filed my tax return, I claimed the interest that I paid on the mortgage in two places. On both the Schedule A, where you itemize your mortgage interest deduction, and also on the Schedule E, where you claim the mortgage interest that you paid on your rental property.
What I should have done is allocate 25% of the mortgage interest deduction on my Schedule A, and then 75% of the mortgage interest that I paid on the rental property on my Schedule E.
Needless to say, that first year I got a HUGE tax refund, which was awesome. However, a short time later, my Dad was looking over my taxes and said I made a huge mistake. So I had to refile my taxes, which was a pain, and more importantly, I had to give that huge tax refund back.
Hiring a Tax Professional
After that, I started paying someone to do my taxes for the next couple of years. It wasn’t until I noticed how much I was paying, over $700 to do a pretty simple tax return, that I decided that it was a huge waste of money.
Once I figured out that I didn’t want to pay the $700 each year to file my taxes, I became obsessed with learning everything about the tax code as I could. I started to review my old tax returns and learn the ins and outs of it. With Youtube today, there’s no reason you can’t go line-by-line on your tax return to completely understand where the numbers are coming from.
Back to Self-Preparing
So from there, I started to understand my tax return and learned how easy it would be to file my taxes. I have to admit, the first year that I did it, I was a little worried. But I compared it to the previous year, and everything looked in line. Plus, I didn’t get a call from the IRS, so that was a bonus.
Since then, I have filed myself ever since, and it’s been one of the better decisions I’ve made. I have a good understanding of the tax code and have been able to walk some friends and colleagues through their own tax returns.
IRS Tax Volunteer
Once I reach FIRE, I would love to become an IRS Tax Volunteer. I’d be able to provide free tax help for low-to-moderate income families who need assistance preparing their tax returns.
As a tax volunteer, you are assigned to work with a sponsoring organization. You first receive training and then begin volunteering at a location in your community. They offer training both online and in the classroom. Tax sites are generally open nights and weekends, and the best part is the hours are flexible.