Do It Yourself (DIY) Taxes: Overview and General Tips

In doing my taxes this year, I figured I would give a brief write up of some of the things I discovered and share the general process of doing taxes. To me "doing taxes" always sounds like a lot of work and not an enjoyable way to spend free time. However by breaking it down, using the online resources, I believe that doing your own taxes is an excellent way to help understand your finances and take control of your inevitable duty to pay the U.S. Government.

To complete your taxes, their are a bunch of options available. H&R Block and other tax preparation services can walk you though preparing your taxes with you (not for you, at the end of the day, you are responsible for everything on your tax forms). While these firms usually know the in's and out's of your tax forms to help maximize your return, they also charge money for their services and take away the self-empowering enjoyment of doing your own taxes!

Another option is to use online or desktop software, such as Turbo Tax, to complete your taxes. This is another great method to essentially do your taxes yourself from the comfort of your home and their are some great write ups on these different tax software's. It truly is a great method if your taxes are a bit complicated and are willing to pay the fee for the software.

The third method I would like to mention is doing your taxes 'from scratch'. Essentially just using the correct tax form you need and the instruction booklet for that tax form. While this may sound old fashioned in this technology age, I believe that it empowers you on a journey to tax knowledge and understanding that the previous two methods don't allow. Below I outline a few overview points about tax forms in general and then give a few pointers to help follow the instruction booklet. While this is public here on this blog, I plan to use this as a reminder each year for issues I need to remember to expedite my tax filing in years to come.

If you need to file a tax extension in 2013 for 2012 taxes, their is a nice write up here about it.

Overview of a Tax Form

Ok, so let's dive into the basics of a tax from. In a very general form, the 1040EZ and 1040A essentially do three things as you fill in the lines
1. Calculate up your total money earned in the filing year and subtract any deductions from this total earned income to calculate your Adjusted Gross Income (AGI).
2. Determine your Standard Deduction that the government provides (typically ~$6,000 for a single individual (in 2012) and additional for dependents) and subtract it from the adjusted gross income.
3. Calculate your Tax in the tax table from your AGI, subtract additional, after tax, reductions, such as federal income tax withheld (Box 2 of W-2, etc.) and determine the amount of tax owed or amount that will be returned.


Those are the three main sections to work through on the tax forms. Of course, many other factors (and worksheets) can come into play depending on your finances, but in general that's the basics as I see it. Now, let's look at some specifics for following the instruction booklet correctly.

Do it yourself Tips

Overall, I really enjoy the instruction booklet. It does a great job at walking you through each line. Although I will admit that sometimes it becomes a convoluted process that takes more time than anticipated just to fill in one line on the tax form. This is all part of the exciting process of doing your taxes yourself!!! In doing taxes this year, I jotted down a few tips for next year.

• Follow the instruction booklet and ensure it all makes sense. It maybe helpful to skip ahead and see where things are going or to re-read a section
• If it says: "Subtract line 5 from line 2" This means Line 2-line 5, Not Line 5 - Line 2. Sounds simple but can easily be misinterpreted
• Use a spreadsheet (Excel or Google Docs) to calculate entries and lines, to easily make changes later, and to explain your logic in case of an audit or you become confused looking over everything weeks/years later. Separate sheets for additional forms or calculations helps too!
• Examples are provided which can be very helpful to learn what is happening with the monetary values and how the value should be calculated
• Sometimes additional calculations or worksheets that pop up while filling out the tax form, (Capital Gains Tax, Life Long Learning Credit, Savers Credit, Earned Income Credit, etc.). I see these as an opportunity to learn more about the tax system and what taxes we have to pay or credits we can receive  The instructions for these are provided online and are usually just as well documented as the main tax form being filled out
• Their are plenty of opportunities to take tax credits. You may have more opportunities than you realize. As you read about each line on your tax form, be sure to make sure you cannot qualify for this field. If you can, it might be worth looking into more by either filling out another form or doing some additional research on the tax credit

Don't Forget Tax day is April 15th (unless on it lands on a weekend)! Any Questions about taxes, just Google it, or look into AARP for looking over your taxes with you. Besides the IRS website, their are some great question and answer forums, Twitter, and other websites talking about a bunch of tax related questions.  If you have other tips you would like to share, please do so in the comments below. Best of Luck!!

Disclaimer: I am not a tax professional. The following is based on my best attempt at understanding the taxes. Please realize that this as a best guess on how things work and your own situation may vary significantly. You should always consult a tax professional before taking action on any advice presented here.