Can I DIY my tax return?

Should you prepare your own tax return?

I don’t mean just hit a button and be done, but actually feel confident that you’ve prepared your tax return in a way that doesn’t cost you substantial tax dollars?

Tax rules can get super complicated, super fast and there’s no prize for overpaying.

My experience is that MOST folks can comfortably prepare their own tax return without concern. If all your sources of income & deductions are from forms such as W-2, 1099-DIV, 1098, etc – it typically “is what it is” and the IRS will let you know if you’ve missed something. I DO see a lot of CONFUSION around taxes among this group – particularly if they owe rather receive a refund. 99 times out of a 100, though, this is caused by a misunderstanding of how taxes work rather than any actual opportunity for tax savings.

So how do you KNOW if it makes sense to work with a tax professional?

Here are some instances where it will make sense to SPEND money to save MORE money.

👉 With taxes, the whole is more complicated than the sum of its parts. Interactions increase complexity. Complexity presents opportunities for tax savings. This isn’t necessarily apparent when using an online tax prep software. The more components your tax situation has, the more likely a tax professional can help you save serious money.

👉 If you have a small business or own rental real estate, you probably need a tax pro. Depending on just HOW small your operations are, this relationship could be fairly expensive for you. However, it will likely be more expensive to attempt tax planning & filings yourself. Ask me how I know.

👉 Equity compensation such as RSUs, NQSOs, and especially ISOs? Work with a tax professional.

👉 Higher earners. While your tax situations SEEMS straightforward because it’s “just a W-2”, I’m still going to recommend a relationship with a tax professional. Yes, you do get to delegate the tax return preparation process which is a better use of your time, but tax return prep is often just a bonus. What you’re REALLY paying for is a tax advisor in your back pocket who knows you and your story and can give you guidance as issues come up. And at your level of income, those issues WILL come up. If you wait until those times arise to seek out a tax advisor, you’ll have a hard time finding someone to give you one-off advice on demand without an established relationship.

👉 Lastly – and I can’t believe I’m saying this – but if you have interactions with Individual Retirement Accounts (IRAs), you may need professional help to optimize this from a tax perspective. The rules around IRAs continue to increase in complexity. There are sooooo many ways to go wrong with IRAs – tax-inefficient uses of IRAs in estate planning, failure to take required minimum distributions, overcontributions to Roth IRAs that are a pain to fix, failure to fund charitable giving with qualified charitable distributions when not itemizing, how to handle inherited IRAs, etc. At best you waste tax dollars. At worst you run afoul of contribution & distribution rules that involve penalties.

Tax professionals are not inexpensive and we’re getting harder and harder to find. Absolutely DIY what you can and then work on establishing a relationship with a tax advisor well in advance of upcoming tax-related concerns.