31% Plan To File Their Own Taxes in 2023: Here Are 5 Tips for Getting It Right
After more than a year of grueling inflation, people are looking to save money any way they can — even if it means doing their own taxes. According to a new GOBankingRates study of more than 1,000 adults, nearly one in three people plan to file their returns themselves in 2023.
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Considering the circumstances, they’ve picked quite a year to take the plunge.
“Before people get ready to file their taxes this year, it’s more important than ever to be prepared,” said Richard Lavina, CPA, CEO of Taxfyle. “Taxes continue to become more complicated and the IRS is hiring more agents, which means audit risk is likely to increase.”
If you’re thinking about joining the 31% of brave souls who plan to venture into the IRS abyss alone this year, here’s what you need to consider before you dust off your calculator.
Understand Your Income-Based Options
The IRS does not charge people to file their taxes on their own, but your income will determine your experience.
It’s Quick and Easy if You Meet the Income Requirements
Anyone can prepare and submit their returns at no charge through IRS Free File.
If your adjustable gross income (AGI) is less than $73,000, you can do it the easy way by choosing free guided preparation. The agency offers 11 options for filing, including through well-known third-party providers like TaxSlayer and TaxAct.
Guided preparation does all the math for you, and all you have to do is answer simple questions to get a federal return and “some state tax preparation and filing” for free.
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The Process Is Much Less Appealing for Higher Earners
If your AGI is over $73,000, you’ll have to do it the hard way by using the IRS’s Fillable Forms option instead.
While you don’t have to be an expert on tax law to figure it out, the IRS offers this word of caution: “You should know how to prepare your own tax return using form instructions and IRS publications if needed.”
This option offers no tax preparation guidance and performs only the most basic calculations. You are essentially on your own, filling out and filing your forms by yourself — and you’ll get no help with your state returns, either.
Once the IRS accepts your returns, you cannot make any changes, and when Free File closes on Oct. 21, the IRS deletes all your information from the server and you won’t be able to access, view or print your information. Users must create a new account every year they file this way.
There’s Always Snail Mail — Buy Why?
There’s also the option of printing out your paperwork, filling it out manually and mailing it back. The printing-averse can order tax forms for the IRS to mail to them, which they then fill out and return to the agency.
However, this option makes sense for almost nobody.
The IRS strongly advises taxpayers to file electronically, as it can take up to six months to process paper returns and issue refunds compared to 24 hours for those who e-file. If you are among the few people who still send paper returns through snail mail, the IRS suggests you at least set up direct deposit to collect a refund.
Know What You’re Getting Into
If you’re filing a simple return, you can still find free software even if you earn more than $73,000. If your income is more complex, most sites charge between $25-$100 or more. But before you go it alone to dodge that expense, consider that time is money.
According to Business Insider, you should expect to spend seven hours gathering records and filing your returns if you DIY — but that’s if you’re doing personal returns only. If your income comes from a business you own, make sure you have the time and patience to put in 20 hours of work.
Also, consider this — if you spend 20 hours doing it yourself to avoid paying $100 for software, you’re gaining $5 an hour to do your own taxes.
Congratulations — you’re the cheapest accountant in town.
Follow a Checklist and Don’t Neglect the Prep Work
Just like painting a room, doing your own taxes requires preparation that can be more grueling than the chore itself. Instead of sanding walls and laying drop cloths, though, you’re in for a whole lot of collecting and organizing of paperwork.
“Getting organized means gathering all tax documents, including W-2s, 1099s and receipts for deductions, and keeping them in a safe place,” said Lavina. “This makes the process of filing taxes much easier and faster.”
Even if you don’t use their software or services, companies like Jackson Hewitt offer free checklists for organizing documents and forms that you’ll need to report. Everything from rental income and medical expenses to charitable contributions and scholarship records are included.
Just click the circumstances that apply to you and the tool will produce a list of all the documents you need.
Use a Tax Calculator
Similarly, sites like TurboTax offer free tax calculators that you can utilize even if you don’t use their software — and you should take them up on it even if you’re confident in your skills.
“Tax calculators can help you accurately calculate your taxes so that you can figure out what steps you need to take to lower your tax obligations or maximize your refund through credits and deductions,” said Lavina.
If You’re Not Confident, Considering Paying as an Investment That Can Pay You Back
Now that you know what the process involves, you might want to reconsider going it alone in what could be an especially complex tax year. After all, just a few errors can wind up costing you more than you would have paid for help.
“Hiring a tax professional can save you time, stress, and money in the long run,” said Lavina. “Tax professionals, such as a CPA or IRS enrolled agent, are likely to find ways to maximize your tax refund and help you navigate complex tax laws and regulations. They can also help you with tax planning, which can help reduce your tax burden in future years.”
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