Doing Your Own Taxes This Year? 4 Essentials You Need To Know
Nearly every working U.S. citizen and permanent resident has to file taxes every year, but not everyone goes about it in the same way.
If you’re someone who’s thinking about filing taxes on your own this year, here are some things you should know beforehand — and whether it might or might not be a good idea for you.
Tax Laws Change Frequently
Tax laws change every year. Your income bracket might not be the same this year as it was last year. Or your deductions might change. That’s why it’s important to stay up to date with these laws — or to brush up on your knowledge before filing.
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“Keeping up with new tax law changes is critical,” said Hassan Sanders, an IRS-registered tax prepare and founder of Diabetic Insurance Solutions. “Every year, tax regulations change, altering deductions, credits and filing requirements. It is critical to be well-informed to ensure accurate filings and optimize possible savings.”
But remember, tax laws can vary by state, as well.
“Understanding state-specific tax laws and filing requirements is essential to prevent errors and potential penalties,” added Mark Stewart, in-house certified public accountant for Step By Step Business.
Check out the IRS website or publications for any recent or upcoming tax regulation changes — or speak with a tax professional to avoid errors or penalties when you file.
It’s Possible to Incorrectly Report Your Income
Misreporting your income, even if it’s unintentional, could lead to tax penalties or audits. This is especially common amongst those who own a business, have multiple income streams or who have a complex investment portfolio.
If you’re filing taxes on your own, make sure you’re documenting all income sources and that you understand how to correctly report everything. Otherwise, you could end up with discrepancies or delays.
“Gather all your paperwork, like W-2s and receipts, and double-check your math to avoid mistakes,” said Chetan Patil, the managing attorney and owner of Patil Law. “It’s a good idea to consult IRS publications or get advice if you’re unsure about anything.”
Don’t skip the lesser-known documents either, such as those from investment dividends, freelance work or rental income.
Improper Documentation Could Lead to Missed Deductions
Getting those tax credits and deductions could mean the difference between owing thousands of dollars and potentially getting a refund. So, make sure you’re keeping track of everything throughout the year.“An often overlooked concern is appropriately recognizing qualifying deductions and credits,” said Sanders about those who file on their own. “Taxpayers may overlook chances for savings, such as education credits, energy-efficient home upgrades or specific medical bills.”
Other uncommon deductions include educational expenses and charitable contributions.
International Cases May Require a Tax Professional
For U.S. residents living in the country, filing taxes without software or professional help might be OK in some cases. But the situation becomes immensely more complicated for those who live abroad.“If you are an expat and live outside the U.S., have investments abroad or own a business overseas, you will need a professional who specializes in this very nuanced area of expat taxation,” said Crystal Stranger, JD, EA, NTPI Fellow and CEO of Optic Tax.
The same goes for non-residents who live in the U.S. or have U.S.-based investments.“If [you’re] working in the U.S. on a visa or a non-resident with U.S. investments, the laws can be very complex and specialized knowledge is required, so it is critical to get knowledgeable tax help,” added Stranger.
When Filing Taxes on Your Own Is a Good Idea
Whether or not you should file taxes on your own depends on your knowledge of tax laws and how complex your financial situation is.“In my opinion, filing your own taxes without software can be a good idea if you have a simple tax situation and are confident in your knowledge of tax laws and procedures,” said Dana Ronald, a tax professional with Tax Crisis Institute.
Plus, you can save money on software costs or other professional filing fees.“There is a certain satisfaction in completing your taxes on your own, but it’s always advisable to consult with a professional if you have any doubts or uncertainties,” added Ronald.
When Filing Taxes on Your Own Is Not a Good Idea
“While self-filing without software may be appropriate for people with simple financial conditions, it is not recommended for those with complex portfolios or unusual circumstances,” said Sanders. “Tax regulations are complex, and neglecting essential facts can lead to errors that result in audits or financial penalties.”Here are a couple of key scenarios where you should avoid filing completely on your own:
You have a complex investment portfolio. “If your financial landscape involves diverse investments, intricate stock transactions or real estate dealings, the expertise of a tax professional becomes invaluable. These scenarios often carry nuanced tax implications that require a trained eye,” said Stranger.
You’re engaged in international financial activities. If you’re an expat living abroad, or if you’re a non-citizen or resident living in the U.S. or with U.S. investments, you might be better off seeking professional help.
You own a business. “Navigating the tax terrain for business incomes, deductions and compliance demands a level of expertise that tax software might not provide, especially when it comes to corporate or partnership returns,” said Stranger. “Not even most tax professionals are equipped to prepare these correctly, and self-prepared returns are typically riddled with audit-triggering errors.”
Ultimately, it’s up to you whether or not you file on your own. If you’re not sure, it might be better to go with a tax professional or an official tax software.
“A competent tax preparer can help you navigate complex tax rules and ensure that your files are accurate and compliant,” said Sanders. “The peace of mind received from professional assistance frequently balances the dangers associated with self-filing, particularly for people in complex financial situations.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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