When Can You Do Your Own Business Taxes
You can always attempt to do your own taxes, or you can use business tax preparation software. Ultimately, whether you can successfully pull it off depends on yourbusiness type, its complexity, and your tax experience.
Business filing requirements range from submitting an additional form or two with your personal tax return to completing a corporate income tax return.
Look at the tax form that’s appropriate for your enterprise and decide what information you’ll need to complete it and where you’ll get it. Most will come from your financial statements, including your balance sheet and income statement.
You might need additional information to complete tax return sections for things like cost of goods sold and your home business space.
Tax Misconception #: Filing Your Own Taxes Will Always Save You Money
Preparing a tax file isnt exactly everyones idea of a good time. If you are wondering about filing your own taxes, its probably because you are trying to save some money. You totally canbut it isnt a guarantee that hiring a tax professional will cost more in the end. Sometimes its very much the opposite.
The biggest benefit to working with a professional is potential tax savings, says R.J. Weiss, founder of The Ways to Wealth. While other considerations such as peace of mind and being able to ask questions are important, a good tax professional can help you keep more of your money today and in the future.
Its also important to note that mistakes can be expensive. Think about what it could cost you in the long run, if you make errors on your tax return, says Brian Ashcraft, director of customer experience at Liberty Tax. Its probably less expensive to pay for professionalism upfront than deal with the IRS later.
The potential financial benefit from hiring a professional versus filing on your own will depend heavily on your specific situation. Read some of the following factors to get a better idea of where you are.
How Do You Get A Ptin
This process begins on the IRS website and requires annual renewal. However, there is no fee for either the initial registration process or the renewal.Once a PTIN is issued, the tax preparer is required to put this on every single return they prepare. In general, the IRS website includes many helpful solutions and other tips for people beginning this process.
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What Is Irs Free File
The IRS Free File Program is a public-private partnership between the IRS and many tax preparation and filing software industry leaders who provide their brand-name products for free. It provides two ways for taxpayers to prepare and file their federal income tax online for free:
- Traditional IRS Free File provides free online tax preparation and filing options on IRS partner sites. Our partners are online tax preparation companies that develop and deliver this service at no cost to qualifying taxpayers. Please note, only taxpayers whose adjusted gross income is $72,000 or less qualify for any IRS Free File partner offers.
- Free File Fillable Forms are electronic federal tax forms you can fill out and file online for free. If you choose this option, you should know how to prepare your own tax return. Please note, it is the only IRS Free File option available for taxpayers whose income is greater than $72,000.
Find what you need to get started, your protections and security, available forms and more about IRS Free File below.
The IRS does not endorse any individual partner company.
- A copy of last year’s tax return in order to access your Adjusted Gross Income
- Valid Social Security numbers for yourself, your spouse, and any dependent, if applicable
Income and Receipts
Watch For Your Income Documents To Arrive
You should receive forms about how much income youve earned from your employers and other income sources in January or February. If you are a full-time employee, you will receive a Form W-2 detailing your earnings, as well as which taxes were withheld. If you work freelance or on a contract, you may receive a Form 1099-NEC detailing what you earned. You may also receive documents showing dividends or interest earned on investments , or student loan interest youve paid . If youre a college student , youll receive a Form 1098-T that shows how much you paid in tuition, as well as any amounts you received from grants or fellowships, to help you figure out deductions and credits related to education expenses.
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Is Turbotax Reliable And Safe
TurboTax keeps your information secure with data encryption. It also requires multi-factor authentication every time you log in to verify your identity.
One of the biggest complaints about TurboTax is the ease with which it attempts to upgrade users to the next-tier product. A 2019 investigation by ProPublica found that Intuit, TurboTax’s parent company, was deliberately hiding its free filing services from Google and other search engines. As of this writing, TurboTax’s free file options are clearly advertised.
TurboTax is a leader in tax preparation services for a reason. Millions of people come back to TurboTax year after year because they can easily and successfully file their tax return. If you follow the directions provided and enter the numbers on your income forms correctly, you should end up with accurate taxes just as if you went to a more expensive professional tax preparer.
Gather Your Tax Slips
Before logging in to your favourite tax return software program and getting started on your return, you need to make sure you have all of the tax slips and other documents youll need. Without them, you run the risk of filing an incomplete return or having to pause midway because youre still waiting on a tax slip that hasnt arrived yet.
Here is a list of the more common tax slips and documents that you may require:
- Government income slips
- T3/T5 slips
Once you know you have all of the necessary paperwork, youre ready to go.
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What Is An Electronic Filing Identification Number
An electronic filing identification number is a number assigned by the IRS to preparers who are approved for the federal and state e-file program.
Once issued, an EFIN does not expire. However, if you change your Employer Identification Number or the name of your firm, you will have to either get a new one or update it through the online portal.
Its important to note: everybody who prepares taxes needs a PTIN. However, only your firm needs an EFIN. One per firm or per physical location is usually required.
To put even more simply: you need a PTIN to prepare and an EFIN to e-file.
Some Things To Consider
Consider the cost of hiring a tax preparer versus the cost of tax software. Several of the business tax software programs come with online support from CPAs or Enrolled Agents who can help with questions, but some might not be trained or experts in business taxes as opposed to personal taxes.
A tax professional who is knowledgeable about business taxes might cost more, but they might be able to find loopholes that can save you money.
It’s possible to do the return yourself using tax prep software if you must calculate cost of goods sold, but getting the help of a business tax professional is probably best in all other cases.
It can be valuable to you as a businessperson to get tax advice on an ongoing basis, throughout the year and not just before tax time. This will help keep your tax liability as legitimately low as possible.
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Though You May Be Tempted To Hire A Professional In Many Cases It Pays To File Your Taxes Yourself
Though filing your taxes may be a stressful process, it isn’t necessarily a complicated one. If your taxes are fairly simple, you may be wondering: Should I do my own taxes? Is it easy? And where can I file online? While there are certain circumstances where it pays to hire a professional to prepare your tax return, if you have a straightforward source of income and a fairly simple return, you’re probably better off filing yourself.
Youre A Single Parent What Do You Tell The Irs
So you are raising a child on your own. Tax software may prompt you at the outset to choose between filing as single or head of household. Both answers are true, but if you say single, you may lose out on valuable deductions.
Sheneya Wilson, a New York City accountant, has seen the results in her office. It even is a problem with the weapons-grade software used by tax pros, which doesnt necessarily prompt a preparer who adds a child elsewhere in the tax forms to change the clients filing status to the more optimal head of household choice.
A client who hasnt filed as head of household in the past has missed valuable savings, and it can cost $1,500 or more per year.
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Review Your Documents From Last Year
When doing taxes yourself, you might want to review the information from your previous years federal and state tax returns. Much of the information will likely be the same, including employer federal ID numbers, childrens Social Security numbers, and even some of your credit or deduction options. The IRS also uses your prior-year AGI to verify your identity when you e-file, which means youll want to make sure you have the information you submitted last year on hand.
Starting with an old return can help you enter information quickly and accurately. One great tip for doing your own taxes is to use a software program such as TaxAct that can often import old tax data. That way you dont have to enter it again, which can save time and reduce the potential for typos and other errors.
How To Choose A Tax Preparer
Ask anyone you hire how they will protect your data, especially if they file an electronic return. Also, investigate if they can and would represent you before the IRS in the case of an audit. Remember: Even if they sign off on your return and help with an audit, generally liability ultimately falls on the taxpayer, not the professional.
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Check Your Tax Filing Requirement
Your gross income meaning your total personal income before taking taxes or deductions into account must meet certain rules and levels before you’re required to file a tax return. A single person under the age of 65 with a gross income of less than $10,150 was not required to file a return for the 2014 tax year. Income requirements are different for seniors, heads of households and dependents with income.
Even if your gross income falls below the filing threshold, you may have to file for other reasons, such as to include income from self-employment, because you received tips not reported to your employer, or for health insurance reasons. Filing a return when you don’t have to may qualify you for tax credits and possibly a refund of any withheld taxes.
Best Paid Tax Software Option
If your tax situation is a bit more complex, or you dont mind paying for the extra bells and whistles, I recommend Intuits TurboTax. For years, they have been a top choice for Canadians for a good reason. TurboTax can handle just about any return, and the user interface, while not as simple as Wealthsimple Tax, is easy to follow.
Key TurboTax features include Auto-Fill my return, automatic searching from over 400 tax credits, and help and guidance for self-employment deductions.
Turbo does have a free version for basic returns, with their paid versions ranging between $19.99 to $44.99 . For more information, check out my full review of Intuit TurboTax.
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How Much Time Do I Have
In general, block out a solid day or two on your calendar. On average, taxpayers spend 11 hours filling out their 1040s , according to the IRS. Taxpayers that don’t have businesses to account for average about seven hours, the IRS says. If you had a side gig or ran a business, you’ll need more time 19 hours on average, according to the IRS.
How Much Does Turbotax Cost
Tax prep companies frequently offer discounts on products early in the season. The prices listed in this article do not include any discounts. You can check the company’s website to see current offers.
TurboTax costs more than other tax-preparation services. Packages beyond the free version can run at least $100 total for a federal and state return.
TurboTax online offers four different ways to file your taxes, depending on your unique tax needs. With all versions except desktop computer software, you can start and enter your information for free. You only pay at the end when filing your federal and state tax returns.
Prices do not include any discounts.
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You Experienced No Changes From Your Previous Tax Situation
If nothing major occurred to your tax situation this year, relying on your work from last year with numbers from this year might make sense. This is, of course, if your situation was easy to handle last year.
In the event you didnt experience anything material changing in your life , and the time requirement doesnt present a challenge, DIYing your taxes might make sense. This is especially the case where hiring a tax professional doesnt fit in your budget.
If nothing changed, in all likelihood, you can roll forward most of the information and elections included on last years return. However, make sure to track any other sources of income or deductible expenses you may have experienced.
Saving Your Return And Supporting Documents
In most cases, the IRS requires that documents supporting most tax returns be saved for three years. For example, tax records for 2015 can safely be discarded at the end of 2018. There are some situations where the IRS suggests holding on to your data longer. Documents that support another purpose, such as an insurance claim, should be kept in a safe place.
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Tax Misconception #: The Computer Is Correct
The IRS and state tax computers spit out tax bills that can be wildly wrong based on various third-party matching programs or lack of details on the original tax filings, says Randy Tarpey, CPA of Sickler, Tarpey & Associates. This can apply to any computerized system you or others use when filing taxesif a computer is working with incorrect information in the first place, the output it provides isnt going to account for this. Tarpey says a little human effort and knowledge about correcting notices to the right balances makes a huge difference.
You Really Want To Learn About Tax Code
Some people are intrigued and curious about how taxes work and want to get a better grasp on their specific situationif that sounds like you, maybe digging into the laws and regulations around taxes is your cup of tea.
The tax code is huge, Ashcraft says. Understanding it can be challenging, especially with all the new changes related to tax reform. Its no simple undertaking, but if you have a natural instinct in this topic and a fairly uncomplicated tax situationeducating yourself can make filing your own taxes more worthwhile.
If you want to learn how to file your own taxes, you should do your own taxes, Tarpey says. But dont fail to gather proper documentation, read your return and coordinate with your parents tax filing if you are a dependent.
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Collect Necessary Tax Information
Gathering the appropriate paperwork might be the hardest part of the tax return process, but if you’re a filing wizard, it’s not that hard at all. The big document at tax time is the W-2 you receive from your employer. Other forms and documents you may need include:
Your previous year’s tax return
1099 forms showing self-employment, stock trading, interest or dividend incomes
1098 forms showing interest on student loans or mortgages
Receipts and acknowledgements for charitable contributions
Documents showing contributions to 401 and individual retirement account plans
Supporting receipts and documents for any itemized deductions you might claim
Small Errors Lead To Expensive Tax Bills
Tax software or the old-fashioned paper forms and calculators wont help much when the numbers that human beings use in the first place are flawed.
Finding and entering tax information often isnt always easy. That part of the process requires reading comprehension and critical thinking skills, made more complicated by a specialized vocabulary, said Lynn Henley, an accountant in Pacifica, Calif.
And mistakes are possible when you do it all yourself. A new client of Minnie Lau, a San Francisco accountant, recently made a misfire in declaring the cost basis of some employer-issued stock, thanks to a fumble involving the interplay between tax software and a brokerage statement. Ms. Lau fixed the return, and the client got $14,000 back.
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