I Saved an Extra $1,000 Using Online Tax Software
I’ve been doing my taxes online for the past seven years. During those years, I’ve lived in Wisconsin, Illinois, Florida, and Washington. I was employed by three different companies. I started and closed three different businesses. I was an independent contractor for at least five other companies and worked as a sole proprietor. I had investment accounts that made money, lost money, and eventually closed.
As you can see, my tax situation has been anything but simple. Yet I’ve never had to hire an accountant. I’ve never even been tempted to. After a recommendation from my brother, I started using TurboTax and I continue to trust it every year.
Just last year, I saved a significant amount on my taxes using online tax software despite the fact that I’m not up to speed on tax code and deductions.
Here’s an example of one major way I saved money:
I had no plans of taking advantage of my relocation costs but, as I was doing my taxes, this question popped up on the screen: “Did you move this past year?”
From there, I was led to a few more questions that had me calculate the total number of miles I moved. I also entered in all the costs of moving (luckily, I kept all my receipts) and the purpose of the move (new employment). I ended up saving over $1,000 on my taxes by deducting these relocation costs. I don’t know if this would’ve happened had I used an accountant or tax preparer, as they assume you’ll present all this information to them.
Doing Your Own Taxes Saves Time and Money
There are certain situations where an accountant is necessary. But for 90% of you out there, an accountant is a waste of money.
Here are 6 reasons why you should file your own taxes with online tax software:
- Save Money
- Save Time
- Financial Self-Awareness
- Potentially Avoid Audits
- Access Previous Year’s Return
- Instant Filing and Quick Refund
Reason 1: Save Money
Filing Taxes Online Might Save You $200 or More Each Year
Paying an accountant is not worth your money. If you use online tax software instead of using an accountant, you could save around $200 per year, maybe more. A post on the Wall Street Journal website reported on what tax preparers really charge by using information from a survey of the National Society of Accountants. The group of 11,000 members or tax preparers said the average cost to prepare an itemized 1040 with a Schedule A and a state tax return was $246.
In comparison, the version of TurboTax you’d need to accomplish the same thing would cost you $39.99, plus another $36.99 if you have to file state tax. So you’re talking about saving, on average, around $200 upfront. (Saving time also saves you money, which I’ll get into next.)
The more forms you need and the more complex your taxes get, the more it costs you. Filing additional IRS forms will cost between $50 and $700 per form, on average, if you use an accountant. Several of these forms are included in the various versions of online tax software. In most cases, you can get everything you need for less than $100.
Reason 2: Save Time
Filing your taxes online with companies like H&R Block and TurboTax will save you time. I’m aware this goes against what you’ve probably read elsewhere or what you’ve heard. Common sense says if you’re paying for someone to do it for you, you’re saving time.
I’m not an expert in U.S. tax code nor a math whiz, but I’ve been able to file my taxes every year (with great results) in less than two hours using online tax software.
You never have to leave your home. You don’t have to call and schedule an appointment. You don’t have to spend time driving to your accountant’s office to drop off your paperwork and pick it back up. By doing your taxes in front of your own computer, you’re cutting out at least three other tasks you’d have to worry about.
No waiting period. You don’t have to wait for your accountant to call you back and tell you what your refund will be. You don’t have to wait to file your taxes either. If there’s an error to be corrected, you fix it on the spot. There’s no communicating back and forth.
With online tax software, you can watch your refund accumulate as you go. You can instantly e-file when you’re done and choose how you want to get paid out. I get my refund via direct deposit so it’s in my account much faster.
You don’t have to spend time finding a “good” accountant. The best online tax software is programmed to help you get the best refund possible. It takes away the element of someone else committing an error. Sure, you can make a data entry error yourself, but the software puts measures in place to correct any issues. Accountants are humans and not all are the best at what they do. If you do choose to go with an accountant, you don’t want to pick just any accountant. You want to find a good one who’s going to get you the largest refund without causing any problems.
All your paperwork is in one place. Things are less likely to get lost because you have everything in one place. You aren’t transporting receipts and documents to other locations. This saves you from spending time on organizing everything you need so someone else can understand it. Imagine the time and stress involved if something gets lost in transit or by your accountant.
Reason 3: Financial Self-Awareness
If you want to truly understand and take a serious look at your financial situation, do your own taxes. You gain an awareness you’d never have if someone else does it for you. You see your assets, expenditures, and income at a detailed level for the entire year.
Doing your taxes on your own also helps you understand what you can write off. You learn what receipts to keep and what to discard. Products like H&R Block ask you detailed questions as you work through your taxes. It makes you stop and think about what has happened to you in the past year financially, and even more so in your overall life.
I was moving so much I could hardly keep track of where I lived and what I worked on in the past year. When I started filing my taxes online, I considered the overall impact of all my financial choices from the previous year. I thought about how much it cost me to move across the country for the second time. Was the move worth it in the first year? What income did I give up for the new job that I took? Asking myself these questions has certainly helped me make smarter considerations as it relates to major life decisions.
Filing my own taxes is a time of reflection for me. It really makes me think about where I’m at now and where I was last year. I use it as a platform to set goals for the upcoming year.
Reason 4: Potentially Avoid Audits
Accountants are under pressure to get people the best refund possible. That’s even more true today with the growing popularity of online solutions. The only way an accountant can justify his or her value is to offer advice and deliver a monster refund. You have to be especially careful if you’re self-employed or own a business. Just because you’re using a tax preparer doesn’t mean you’re lowering your risk of being audited.
I’m not saying this is a common occurrence among tax preparers, but I’m saying the pressure is there. As someone who grew up with a family business, I’ve seen some of the write-offs accountants have pushed for. The one I most vividly remember was the suggestion to write off a pontoon boat we owned as a “service vehicle,” implying that my dad was using the boat to look at job sites. (Okay, he actually did do it one time, but not for a full year!)
My parents were among the 1%-2% who were audited. Yes, they did fire their accountant. Of course, your audit risk is higher if you own a business and even higher as your income increases. The 2012 IRS Data Book shows all of these statistics in detail.
Filing your taxes by hand is another easy way to get audited. Around 4.7 million tax returns in 2012 had to be corrected for math errors.
If you use tax software, it’s more difficult to get into that “grey area,” falsify your return, or forget to report some income. The products also do the math for you so you’ll avoid any errors caused by hand filing.
I understand that people can put themselves into that “grey area,” but you should be following step-by-step instructions from a product that is compliant with the law. Most of the products also come with an audit-risk tool. I’m very familiar with the tools provided by TurboTax so I’ll use that as an example. The software shows you the level of risk you have and provides tips to help you reduce the chances of getting audited. If you do get audited, they offer professional help and other solutions to help you through the process. Tax experts are also available to talk to if you have questions along the way.
Since audits don’t typically happen until two years after you file, you won’t have anything to worry about right away. You can still get audited if you use tax software. I just believe it’s less likely to happen. If it does happen, you did it to yourself. I’ll take that anytime over a problem caused by someone else that I paid to do a job.
Even if you choose to use an accountant, you should advise them not to push it. You might save a little now but have a major headache down the road.
Reason 5: Access Previous Year’s Return
If you consistently use an online tax program, the top products always let you view your returns from previous years. It’s all online and it’s simple to access. Your other option is to contact your accountant or follow these instructions from the IRS.
Most of the online tax products can use your information from your previous return to get started on the next year. This goes back to reason #1 — it saves time. When I fire up TurboTax this year, all my information will be right there. The software will ask me a few questions about any new situations that may impact my tax return for this year. Once that’s done, the basis is established for a quick filing.
Reason 6: Instant Filing and Quick Refund
My favorite thing about online tax software is the finality of it. You get this sense of completion once you finish. You can instantly e-file your taxes and you’re notified by email when it’s received and accepted. Shortly after, you can expect to see your refund deposited into your bank account (if you have one coming).
This beats having to wait for your accountant to let you know your return has been filed, having to ask if the return was filed, and awaiting your check in the mail. For me, it’s about clearing my head. Once I file my taxes online, it’s done. I’m not waiting on anything and I don’t have to remind myself to follow up.
Arguments Against Doing Your Own Taxes
Most of the reasons for not doing your own taxes are invalid. In fact, many of them apply to the archaic way of doing your own taxes by hand and ignore that online tax software exists.
Some of the commons reasons why you should not do your own taxes are:
- An accountant stays up to date on tax laws
- You need expert advice
- You can use an extra set of eyes
- You get tax guidance throughout the year
Here are my answers to those reasons:
- Just like an accountant, online tax software will be up to date on tax laws. Most products are built with or by CPAs and updated throughout the year.
- If you need expert advice, you can get help for free on most platforms. TurboTax offers free live tax advice. H&R Block welcomes you to step into a local office and speak with someone in person.
- The software itself is an extra set of eyes. It doesn’t let you enter some information that is incorrect and makes sure everything is right before moving to the next step.
- Online tax software can’t provide you with guidance throughout the year, but you shouldn’t need much guidance unless your tax situation is complex. By filing your own taxes, you also learn tips on your own and you’re less reliant on the services of others.
No Accountant Needed: File Taxes Online
I’ve made it very clear throughout you shouldn’t bother with an accountant. While I believe this is the case for most people, I know there are situations where an accountant is required.
You can file taxes online if any of the following apply to you:
- You are single
- You have children or dependents
- You own a home
- You sold stocks or bonds
- You own rental property
- You own a business or are a sole proprietor
- You are in the military
Keep in mind these are broad definitions of filing taxes. You can use tax preparation software to write off charitable donations, home office deductions, small-business depreciation, and more.
If your situation falls outside of the above parameters, I recommend getting an accountant.
Otherwise, I would try H&R Block or TurboTax. You can get started with either for free if you have a basic return. I’ll review both these products in a future post so you can decide which is best for you.
Written by Mike Jelinek Editorial Note: Compensation does not influence our recommendations. However, we may earn a commission on sales from the companies featured in this post. To view a list of partners, click here. Opinions expressed here are the author's alone, and have not been reviewed, approved or otherwise endorsed by our advertisers. Reasonable efforts are made to present accurate info, however all information is presented without warranty. Consult our advertiser's page for terms & conditions.
Editorial Note: Compensation does not influence our recommendations. However, we may earn a commission on sales from the companies featured in this post. To view a list of partners, click here. Opinions expressed here are the author's alone, and have not been reviewed, approved or otherwise endorsed by our advertisers. Reasonable efforts are made to present accurate info, however all information is presented without warranty. Consult our advertiser's page for terms & conditions.