How hard is it to do your own taxes?
According to the IRS, the average person will need about 11 hours to prepare a tax return. However, 11 hours can easily turn into 11 days or more, if you don’t know what you’re doing.
If you’re thinking about filing your own taxes, but aren’t sure if you can, you’ve come to the right place. We’ve created a short guide highlighting the pros and cons of filing a tax return on your own. Whether you’re filing as an individual or business, you should always know your options.
Read on to find out what the best tax filing option is for you.
How Hard Is It to Do Your Own Taxes? – Answered
To answer the question, “how hard is it to do your own taxes?”, you have to consider your personal situation. Your experience and knowledge of tax law will go a long way towards making the process easy.
For example, do you know what forms you’ll need to submit with your return? Do you know all of the tax credits and write-offs you qualify for?
If you don’t have any tax knowledge, it’ll take you longer to file your taxes. Next, ask yourself how organized you are.
For instance, do you use tools like Google Docs offline, to keep track of your financial documents? Failing to keep accurate financial records can make the filling process take longer.
When to Hire a Tax Professional
If you’re filing personal taxes, the process is fairly straightforward. As long as you haven’t had any major life changes, you should be able to file on your own without problems.
However, while filing on your own is easy, that doesn’t mean it’s the best choice. Hiring a tax professional can help you identify potential tax write off’s. Write-offs you might otherwise miss.
Let’s say for example you’re a freelancer. Did you purchase any equipment for business purposes? If yes, it’s possible you can write all of the equipment off on your taxes.
A tax professional is also helpful if you’ve had a major life event happen. Having a child, moving, getting married, or divorced, are all major events.
When your life circumstances change, so do your taxes. A professional tax preparer might be able to identify tax breaks you never knew existed.
When to Use Tax Software
Using tax software makes sense if you have experience doing your own taxes. However, don’t worry if you’re not a tax whizz, all you need is a little bit of understanding.
By using tax software, you’ll automatically know what information you need to input. The online software will also do all of your calculations for you.
Finally, tax software is great for individuals that are busy in the stock market. Software programs can automatically input data from different broker forms and securities transactions.
Do Your Own Taxes as a Sole Proprietorship
Are you operating an unincorporated business where you’re the only owner? If yes, your company structure is a sole proprietorship. It’s one of the easiest business structures to manage.
Doing taxes for sole proprietorships is fairly straight forward. As the business owner, you can report all of your company’s income and losses on your tax return.
However, you do need to be careful when it comes to legal complications. Running a sole proprietorship means you assume all legal responsibility for your business. Should you not be able to pay your taxes, your personal assets are on the line.
Should You Do Your Taxes as a Corporation?
Is your business a corporation? If yes, you’re either an S corporation or a C corporation.
C Corporation Taxes
When you start a corporation, you automatically begin as a C corporation for tax purposes. You’ll have to pay corporate income tax on all of your company’s profits. The shareholders will pay taxes on any salary they receive, as well as any dividends.
How hard is it to do your own taxes as a C corporation? As long as you’re using a tax preparation software, you shouldn’t have too much trouble. However, if you’re thinking about restructuring to an S corporation, you’ll need help.
S Corporation Taxes
If you’ve never filed a tax return as an S corporation, the filing process may feel a bit daunting. You’ll have to use a completely new form, than the ones you’re used to. The first time you file as an S corporation, have a tax professional help.
An S corporation doesn’t pay corporate taxes. Instead, the company’s losses and profits wind up in the shareholder’s tax returns. To qualify as an S corporation you have to have fewer than 100 shareholders. T
he shareholders can’t be other corporations, nonresident aliens, or partnerships. You also have to be offering only one class of stock. Finally, to qualify, you’ll have to be a domestic corporation.
Mistakes to Avoid for Personal Taxes
Filing taxes as an individual is easier than filing as a small business owner. However, you’ll still need to be aware of the most common filing mistakes you should avoid.
Here’s a short list of easy to make tax mistakes:
Claim the wrong filing status
Mess up math
Miss out on credits
Miss out on deductions
Filing the wrong tax forms
When you file your taxes, you have to choose a status. Being single, without kids, makes it easy to know what status to choose, “single”.
However, caregivers, and single parents, might have a trickier time knowing their status. If you’re unsure about what your correct filing status is, reach out to a tax professional to double-check.
Next, make sure you’re not overlooking any income. Failing to disclose an income, no matter how small the amount, could cause you big problems with the IRS.
Tax Mistakes Small Business Owners Make
Small business owners have to be extra careful to avoid making any tax mistakes. Even the smallest mistake could wind up costing you a major fine from the IRS.
Here’s a shortlist of small tax mistakes that can cause you big problems.
Not reporting accurately
Filing the wrong forms and schedules
Not applying limitations properly
Keeping bad records
Not claiming the right deductions
Filing at the wrong time
Certain forms are invitations for the IRS to come and audit your company. For instance, there’s a form you can file, Form 5213, to prevent the IRS from auditing you for 5 years.
However, once those 5 years are up, you can almost guarantee the IRS will begin auditing you. Before you file any form to help your business, make sure you know the possible consequences.
Taking Care of Your Taxes
How hard is it to do your own taxes? Now you know the answer depends on your financial situation, and tax knowledge.
We hope our article was able to inspire you to continue learning the best tax practices. For more articles to help you grow financially, check out the rest of this site.