Thinking of Doing It Yourself

Thinking of Doing It Yourself?

The clients I do NOT recommend this for is anyone with a business, rental income, or K-1’s. I have had people tell me the software does not provide help with K-1’s, and anyone who has any type of business or rental income needs a tax preparer, period. Why?? Many folks do not know of deductions such as mileage, auto interest based on business usage percentage of car, etc. Also, most folks I have amended (changed) their tax returns for left off a very important deduction: Depreciation.

Depreciation is the allowance you take every year on a large asset like a rental house, major improvements to the rental house, etc. You cannot depreciate land. You take this deduction every year until the asset is “used up”—in the case of a rental house-29 ½ years. This deduction after the first year is around 3.6% of the cost plus major improvements to the home. Now, maybe you think—well, that’s not very much—so what if I left it off?

The problem is—if you left it off, the IRS does not care. If you ever sell that house, you have to show the correct amount of depreciation as a subtraction from your basis. If you never took the depreciation-it doesn’t matter-you still have to take the subtraction. You’re now saying, “What?? But I didn’t take those depreciation deductions!” Sorry, but according to the IRS, it is allowed or ALLOWABLE deductions—you don’t get any credit or anything because you didn’t take the depreciation deductions, no matter what reason you may have.

Same scenario goes for any asset used in a business as well. Software programs are designed primarily for people with simple basic returns, they may have business-type deduction capabilities, but you have to know about them and know how to put them on the software—take my advice, seek a tax preparer (a good one like Memphis Tax Lady!)

My basic fee for a person with rental income is $105.00 for the return itself, plus $35-$50 per rent house. Software that does business returns will cost you about $125 plus tax (Turbotax Home and Business 2019 for example) and you still have to do the data entry. If I do the return for you at basically the same or just a bit higher than the software, WHAT IS YOUR TIME WORTH? If you are audited, you will probably have someone with you to help you—and CPA’s charge around $125-$200 per hour! If my clients are audited, I go to the local audit with you FREE OF CHARGE! Not to mention, I give you tips on other deductions you may not be aware of.

Again, if you have a basic simple return and want to do it yourself, go for it! However, self-employed persons or folks with rental income, please consult a tax preparer (like Memphis Tax Lady, of course)!

By all means, if you feel comfortable preparing your own return, you can file for free using website (type in FREEFILE in the top right-hand box). If your total income falls below the IRS’s guidelines (approx $72K) you can have the IRS software do the work for you. If your income is higher, you can download the free forms and fill it out yourself, or use a software program like TurboTax, etc. Many places such as libraries also offer free tax preparation assistance to lower-income filers as well. Be prepared for long lines!I often counsel my clients to do it themselves if they feel comfortable and want to do so. The clients I recommend this for have W-2’s only and their return is a basic return, or perhaps they have a child that needs to file.