Preparing your own taxes can provide valuable insight into your financial life.
Keep in mind that if you decide to prepare your own tax return, there are many effective software programs such as TurboTax, Kiplinger’s Tax Cut, and Web-based tools that help you track your finances, prepare taxes, and file online.
Preparing even relatively complicated tax returns on your own is becoming a common, and entirely doable, practice.
Getting Organized: How to Prepare Your Own Taxes
Before preparing your taxes, take the time to organize all the documents you will need. These documents include all W-2 forms sent from your employers and tax statements sent by bank accounts and investment holdings. To learn more about getting your tax documents organized, see our Getting Organized section in Financial Health.
You can find Web-based versions of powerful tax software, such as SecureTax or TurboTax that help you prepare and file your taxes. These sites are still best suited to simple returns, but they are becoming more sophisticated.
Using the Right Tax Form
In the past, you didn’t even have to file a return if: no one can claim you as a dependent and your income is less than $6,800, or if you are age 24 or younger, your parents claim you as a dependent, and your income is less than $4,150 (assuming you have no unearned income, i.e., income from investments).
Below are descriptions of who qualifies for each form in past years – check with www.irs.gov for the current year:
- You can use the 1040 EZ form if you are single (or are married and filing jointly) and your total taxable income is less that $50,000. Note that this form does not allow itemized deductions, including any IRA contributions. And you can’t use it if you have any income in excess of $400 from investments (interest on savings account, money markets, stock dividends, etc.).
- You can use the 1040 A form if you qualify for the 1040 EZ form but want to make IRA deductions.
- You must use the 1040 form if you:
- Don’t qualify for the 1040 EZ form but have a relatively simple and straightforward tax return
- Have a moderately complicated tax return and want to learn about your personal finances and the tax system. Keep in mind that if you are going to prepare your own moderately complicated return, there may have been changes to the tax code, so your chances of making mistakes are increased. This could be costly if you happen to be part of the 1% that the IRS decides to audit. Read more about Professional Tax Help to see if you could benefit from professional advice and assistance.
Filing Your Taxes Electronically
If you are going to prepare your taxes, you may want to file them electronically instead of sending them via U.S. Mail. E-filing or electronic filing is a quick, easy, and accurate alternative to traditional paper returns.
Advantages of Filing Electronically
- You receive your refund in about 3 weeks instead of the usual 10 weeks.
- Your chance of getting an error notice from the IRS is decreased because it is more accurate than mailing a paper return. The error rate for electronic returns is less than 1% as opposed to the 20-21% error rate for paper returns.
- You get proof that the IRS has accepted your return within 48 hours.
- Your privacy and security are assured.
How Does Electronic Filing Work?
- You prepare your return(s) on your computer using commercial tax
preparation software (such as Turbo Tax and Tax Cut), submit it electronically, and wait for an electronic notice of receipt.
- Upon receipt of the return information, IRS computers automatically check for errors or other missing information.
- You will be notified if the return has been accepted or rejected. If it’s accepted, you will need to send the signature document (Form 8453-OL, US Individual Income Tax Declaration for Online Filing) with your W-2 form and any other necessary supporting documents.
- If your return is rejected, the electronic return transmitter will assist you in the correction process as part of its customer support.
How to File Electronically
- Get the necessary tax software. TurboTax and SecureTax all include an online filing option as part of their software.
- Prepare your taxes and submit them electronically.
- Get Form 8453-OL, and once your tax return has been accepted, fill it out and send it in, along with any other documents that are required for your specific situation. Your tax software should tell you what forms you need to send in addition to the Form 8453-OL.