Doing Your Own Taxes to Save Money

Don't be frightened. Don't be intimidated. If you're careful and diligent about keeping records then doing your own taxes is a viable option at tax time.
By Gerald Dooley
March/April 1979
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It won't ever be simple exactly, but doing your own taxes doesn't have to be this way either.
PHOTO: STOKKETE/FOTOLIA


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It's been my observation that people who have their finances well under control generally fill out their own federal income tax returns, while those in continual financial difficulties rarely do. And, although doing your own taxes certainly isn't a cure-all for money problems, it can definitely lead to a better understanding of personal and business finances. In fact, just learning how to deal with this yearly tax obligation is often an important step toward a more self-sufficient lifestyle.

Free Assistance

It isn't as difficult to prepare your own tax return as you may imagine. If you can read and follow simple instructions, make elementary math calculations, look up numbers in tables, and ask questions about whatever you don't understand, you're already "equipped" to tackle those imposing forms!

Almost everything you'll need to know to do the job yourself can be found in the instruction booklet that contains your tax forms. And answers to just about any "special case" questions can be located in the free publications that the Internal Revenue Service will send you on request. When those questions arise—or when you need to order a publication—you can also take advantage of the toll-free WATS lines (or local telephone numbers for large cities) that are provided by the Taxpayers Assistance Division: Just look in the white pages of your telephone book under "U.S. Government". On top of that, most public libraries have information on tax preparation, and some even subscribe to professional tax services.

But, you certainly don't need to take special courses or buy additional tax manuals, since most of the latter are nothing more than paraphrased and rearranged versions of the free IRS publications, anyway!

Which Forms, When?

If all your income is listed on W-2 forms (except perhaps for specified minor amounts of interest and dividends) and if you don't itemize deductions, the short form (1040A) is usually your best bet. If you quality to use this form, just follow the instructions. There's absolutely no reason for you to pay $5.00 or $10.00 to watch someone else perform this relatively simple task.

On the other hand, if all or part of your income is derived from your homestead, small farm, or home business—or if you itemize deductions—the long form (1040) is the one to use. Of course, additional schedules are usually required with this form, but don't let 'em scare you. Here again, tax return preparers often charge $5.00 to $10.00 for the 1040 form, plus $5.00 and up for each additional schedule. You can save that money by simply following instructions.

But, whether you itemize or not, be sure to study the information package sent to you by the IRS ... which should also contain all the forms you're likely to need. If it doesn't, there's an order blank in the back for additional forms as well as for the various free tax booklets. You can have these items mailed to you, or they can be picked up at any IRS office (as well as at some post offices and banks). Two free publications that may not be listed but can be requested (No. 17, Your Federal Income Tax, and No. 334, Tax Guide for Small Businesses) are better than almost any tax books you can buy.

Keep Good Records

More deductions are lost because of a lack of records than for any other reason, so be careful not to let a poor filing system steal your hard-earned money!

The best time to begin to collect your assorted tax data is January 1st—the first day of your tax year—not on the April 15th deadline of the following year. In other words, it's already past the ideal time to start making careful notes of the tax deductions you plan to take on next year's return.

If you run a homestead, small farm, or home business, for example, keep a diary log book for daily entries of income and deductible expenses, and be sure you obtain receipts for all purchases of such items ... even those paid for by check. You must make certain, too, that each receipt is dated, and that the numbers are legible.

One of the best ways to keep matters straight is to establish a simple filing system, so receipts and other important papers can be found quickly and easily when needed. (Recycled envelopes can be used for this purpose.)

When you record business mileage on personal automobiles, be sure to log the beginning and ending odometer readings, your starting point and destination, and the purpose of each trip.

And always write down the details of any transaction as soon as it's practical to do so. Never trust your money to your memory!

Don't Procrastinate!

If you're wise, you'll start to complete your tax forms as soon after the end of the year as possible. Once all the data is at hand, fill out each schedule as directed. When you're through, check your math calculations, watch for copying errors, and—to help avoid mistakes—compare your draft copy with your previous year's return.

It's advantageous to finish this rather unpleasant task early for a number of reasons, not the least of which is simply to get it behind you. You'll also find that the IRS is less hassled at the beginning of the year and can devote more time and energy to your questions. On top of that, any money the government owes you is back in your pocket in record time (and—with inflation constantly eroding our dollars—a month or two can make a difference in the buying power of that money). On the other hand, should you discover that you owe them a bundle, you can still wait until April 15 to send it in and use all that extra time to come up with the cash.

Don't forget, too, that you should always keep a copy of your income tax return in your files!  

Ask Questions

If you have unanswered questions (or need help with some of the forms), you can call the IRS or go there in person. In either case, be courteous. You may not think so sometimes, but the IRS personnel are human, too, and most of them will prove helpful if approached in a reasonable manner. Also, don't be paranoid. Give your name right away, and the whole situation will be more relaxed. Those who call anonymously, hedge, or act guilty will automatically create suspicion. (The IRS can't trace you without a social security number, and they aren't on a witch hunt, anyway!)

It's also a big help (when dealing with the IRS) to have your questions written out in advance, and to be direct and to the point. It you disagree with an answer, maintain an open mind and research the subject further. In any case, remember that the IRS staffers don't make the laws or rules, and that these people can't bend the regulations just for you.

"But the government will only tell you their side of the tax question," you may say. Yes. But the chances are excellent that anyone who prepares tax returns will do the same. Such people aren't going to stick their necks out for you! Besides, the answers to the overwhelming majority of tax questions that we small-timers may have are already clearly defined, and the fee a professional may charge to fight your case is often more than the tax saved even if you win.

Be Honest

Above all, don't cheat on your return. If you disagree with the system, fine! You're in good company! You can protest, picket, write your congressman, run for public office, vote, or express your view in many honorable ways. But—even if you don't get caught—cheating erodes your character. In the long run, it's not worth any benefit you might receive.

And what do you do if you're audited? This possibility exists regardless of who prepares your return. If the IRS does contact you, don't panic. More often than not, they just want additional information about an item you listed. If you've made an error, admit it. You can't be put in jail for an honest mistake, although you may have to pay interest on any additional tax or a penalty.

If you feel you're right, though, stand up for your case. Your records and receipts will confirm the figures you've reported. If you substantiate your case—and your position is correct—the inquiry should end quickly. And, if the issue is not promptly settled, there's a specific appeals system within the IRS. (Ask for the appeals publications, which will also explain your rights through the courts.)

There are, however, several things you can do to lessen the chances of an audit or inquiry. First, double-check your return before you mail it. Look specifically for calculation and copying errors. And if any figures are drastically different from those on your prior year's form (if you had some unusually large expense, for example), attach an explanation. Above all, ask questions about the things you don't understand before you file your return ... nor afterwards. And last—but definitely not least—write legibly.

Self-Sufficiency Saves

While it seems there's no honest way to "beat" the income tax system, always keep in mind that what you produce for your own consumption is not considered to be taxable income! Therefore, self-sufficiency can better your standard of living without an increase in your federal income tax. On the other hand, the costs involved to produce items for your own use are not tax deductible. (For example, if half of your garden produce is marketed and 50% is used by your family, then only half of your gardening expenses can be deducted.)

But one thing's for sure: when you prepare your own tax return, you're going to benefit in several ways. First of all, the process itself will help you become more conscious of what's deductible and what isn't, and you'll probably find you can deduct more things than you had realized. You'll also learn not to buy something just because you can deduct it. (Why spend a dollar when it may reduce your taxes by only a few cents?) But, most important, once you're aware of your expenditures, you're likely to take a more realistic view of your own financial situation. You may—as a result—learn to handle your money more wisely.

So you see, tax preparation saves you much more than the practitioner's fee: It's also another significant step toward increased self-sufficiency.


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