We hear a lot about the different classes in American: The upper and lower, the 1%ers, and the fabled middle class… do they exist or have they been squeezed out of existence? When it comes to taxes, there are basically two classes: Those who should do their own federal taxes, and those who shouldn’t. Which class do you fit into? Are you sure? Really, the only way to know for certain which group you fall into is to give it a try. Considering that even simple tax returns are often in excess of $100, it might be the most profitable hour you spend this year.
To figure out whether you’re in the “should” or “shouldn’t” group, take a look at your tax return from last year. If it’s only a few pages long, chances are are good you might be able to do it yourself. If you have pages and pages included in your return, you might want to consider hiring a CPA, unless you really understand the source and purpose of all those numbers.
For those in the first category, take a look at your prior year’s 1040, the official IRS tax form most Americans can use to file their income taxes, and see what sort of income and deductions you had. If you only have one number listed for lines 1 through 10, you are a great candidate for doing your taxes without expert help.
The final thing to consider is whether your income changed substantially. Do you still have just one job? Did you earn any side money or unemployment income, have a child, buy a house, or roll over a retirement account? If you haven’t experienced any big changes in the year for which you’re filing your tax return, you are just the person to file your own taxes.
Filing for Free, Under $72,000 in Income
The IRS has a couple of options for free filing. It has partnered with reputable firms to offer free filing to anyone with an income below $72,000 for the 2020 tax year, which it turns out is about 70% of us. Search the internet for IRS Free File, double check that the page you landed on is truly a branch of irs.gov, and then select the web-based application that best fits your situation.
Once you’ve created an account, gather your various W2s, 1099s, or other tax data you have received. The application will walk you through filling in your information, adding your income and including all your deductions and credits. It’s really that easy. The system will check for errors and missing data–just make sure you type in all your numbers correctly. It’s worth a check and a double check. It’s also worth comparing to last year’s return to see and understand changes or catch anything you might have missed.
Filing for Free, Over $72,000 in Income
The IRS has wisely determined that filing taxes should be free for all Americans, and they’ve provided an application for those who fall above the $72,000 income limit. However, the application, Free File Fillable Forms, will not walk you through your income and deductions with a page-by-page questionnaire. Instead, the program assumes you have a base-level understanding of your tax situation and can work your way around the various tax forms. If you have a similar return from year to year, meaning your income, deductions, and credits come from the same sources each year, this is a great option for you.
When you fill out the Free File Fillable Forms, you must select the forms you use. They will not be automatically provided to you. Also, you have to ensure that numbers carry from tax form to tax form, and occasionally re-insert numbers on the same form and do a little math. You will also have to calculate the taxes you owe based on your taxable income. You can find the tax tables and formulas at the IRS’s website, but make sure the tax rate fits your situation, whether single, head of household, married filing jointly, or married filing separately.
The free fillable forms option is the most prone to errors, so only use it if you’re confident with your tax situation. Compare to prior year returns, and double check numbers. Make sure you don’t miss including a credit or an errant 1099 form.
Submitting and Filing Your Free Return
When you’ve made sure your numbers are right, decide how you want your refund returned to you or how you want to submit your payment. Consider that for the fastest refund (and also, the fastest potential stimulus money), you should include your routing number and bank account number. Then sign and submit that free return.
If you followed all these steps, then congratulations! You are now one of the minority of Americans who can and does complete their own taxes. You’ve probably saved more than $100, you have a better understanding of your income taxes, a more complete picture of your finances, and therefore a better grip on your future.