It doesn’t matter where you’re at on the path to FI, only two things are certain: death and taxes. Actually, FI has nothing to do with it–taxes are a certainty for everyone. When you’re on the path to FI, you probably want to do your taxes a little bit smarter, in a way that suits your own style and plan.
The Three Ways To Tackle Your Taxes
No matter how creative you are with FI optimization hacks, there are only three ways to approach your taxes. Depending on your personal financial situation, complexity, and proclivity to bootstrap your way towards optimizations, you can choose a way to get your taxes done that suits your needs:
1. D.I.Y Tax Software (H&R Block, TurboTax, and TaxAct)
2. Chain Tax Preparation Services (Liberty Tax and H&R Block)
3. Public Accountants or Traditional Agents (CPAs and Enrolled Agents)
The Benefits Of D.I.Y. Taxes
Out of all of the options listed, doing your own taxes will save you money. Although it may not save you a whole lot of time. You may have concerns you don’t know the ins and outs of tax optimization. But, if you’re willing to spend some time familiarizing yourself with it, it can be done. Blogs like The Mad Fientist, Nerd’s Eye View, and the FI Tax Guy are chock full of tips to help you tax hack. With some research–you may know more about tax optimization than the folks at H&R Block.
Fortunately, all three of the biggest online tax services offer truly free versions to file your taxes. You can file your 2018 taxes for free with H&R Block, TurboTax and TaxAct, however, this only applies to the simplest of tax situations. If you have a business, rental properties, or investment income you’ll likely end up paying to use these services.
Related: The 4 Worst FI Tax Hacks (And What To Do Instead)
Using Free Versions Of Tax Software
H&R Block
H&R Block’s free version is best for those who have W-2 income only, have kids, students, and don’t want to itemize. It can handle:
- Federal and State taxes
- W-2 income
- Standard deduction only
- Child and dependent care expenses
- Student loan interest deductions
- Tuition and fees statement
- Health coverage exemption
It does not handle mortgage interest deductions or any income other than W-2 income such as from a business, rental property, or investment income.
Turbo Tax
Turbo Tax’s free version is best for those with W-2 income only, have kids, and don’t want to itemize. It can handle:
- Federal and State taxes
- W-2 income
- Standard deduction only
- Dependents
- Earned income tax credit
- Limited interest and dividend income
Like H&R Block’s, the other free versions, it can not handle business income or income from a rental property. However, you can use it if you have some interest or dividend income, which the other free services do not do. Keep in mind, it doesn’t do student loan interest deductions like H&R Block does.
TaxAct
TaxAct’s free version is best for those who have W-2 income only, do not have kids, and rent. It can handle:
- Federal and State taxes
- W-2 income
- Standard deduction only
Like the other free versions, the free version can not handle mortgage interest or any other income besides W-2. And the TaxAct free version won’t even do deductions for dependents. So if you have kids, this isn’t the plan for you.
Using Paid Versions Of Tax Software
If your tax situation has a bit more going on–including the need to file a Schedule C, which is where you can report income from a business, you’ll need to utilize one of the big three’s mid or higher tiers to file that cost a bit of cash.
H&R Block
H&R Block Premium allows for the Schedule C-EZ for freelance income and Schedule D, which is where you can report investment income. This service will cost $37.49 for federal and $36.99 for state taxes, for a grand total of $74.48.
If you have a more complicated business, you may need to upgrade to the Self-Employed version. This will cost you $59.99 for federal and $36.99 for state, for a total of $96.98.
TurboTax
TurboTax Deluxe will work if you have interest income or a simple business. It will also allow you to deduct mortgage and student loan interest. This will run you $39.99 to file your federal taxes and an additional $39.99 to file your state taxes for a total of $79.98.
If you have a rental property you will likely need to jump up to the Premier version. This costs $59.99 for federal and $36.99 for state, bringing your total to $96.98.
Lastly, if you have a more complicated business you will need the Self-Employed version. This will cost $89.99 for federal and $36.99 for state, which totals $126.98.
TaxAct
TaxAct Deluxe will allow you to claim deductions for student loan interest and report income from a simple business. This version costs $29.95 for federal and $39.95 for state, which brings your total to $69.90.
If you have a rental property, you will need their Premier version for $34.95 for federal and $39.95 for state. This gives you a grand total of $74.90.
If you have a more complicated business, you’ll need to jump up all the way to their top-level plan to file a Schedule C. The TaxAct Online Self Employed+ Edition is $49.95 for federal and $39.95 for state, bring this to a total of $89.90
So, which should you use? Overall, H&R Block was recommended the most by reviewers online for ease of use and cost efficiency, but go with what feels right. Also, each service also offers a questionnaire that will go over your tax situation and suggest the best version for you.
The Benefits Of Using A Chain To File Your Taxes–H&R Block And Liberty Tax
H&R Block does offer an option to file online on your own, but they’re best known for in-person filings. On Average, you’ll spend around $147 to file with a tax professional at H&R Block.
For Liberty Tax, it’s reported the average cost of filing a tax return is around $191. While you may be paying a bit more, Liberty Tax does offer some additional perks that can help you feel at ease when using one of their tax services. If you were audited by the IRS, a Liberty Tax representative will attend your audit hearing for free. Additionally, should an error be discovered, Liberty Tax will cover your fees and any interested owed related to that error.
Nobody wants an error on their taxes, but if you’re paying for a service to have your taxes done, it can be nice to have this assurance when putting your financial information in the hands of someone else!
The Benefits Of Using A Certified Public Accountant
Using a CPA to do your taxes may not be the most cost-effective up front, but if you feel that your financial situation has changed or needs some additional savvy, it might be worth the cost. If you don’t get fulfillment by optimizing your expenses and spreadsheets make you fall asleep–it’s okay to hire help.
For anyone that has been moving money around, recently encountered a significant life change, or isn’t quite up to speed on tax optimization strategies when it comes time to file–it might be a good idea to use a CPA.
Get some recommendations from people you trust. Your local ChooseFI group is the perfect place to go for recommendations to FI-friendly CPA.
Finding The Right CPA
Not all CPA’s will handle your tax information with kid gloves. If you have questions about certain write-offs, or your side hustle income requires some additional forms to file, a CPA might get costly as they sometimes can charge per hour and per form.
A CPA also doesn’t come with an audit guarantee. Anything you submit needs to be fact-checked on your end to ensure you’re not putting yourself at risk. You will need to be organized and sure of the financial picture you’re painting for your accountant to ensure their data is accurate in filing.
If you have a great recommendation from a friend for a FIRE savvy accountant or one who seems up to date with the latest laws, and some creative (but legal!) ways to get your tax liability down, it might be worth the investment. If anything, you can do a dry run with a CPA until you feel capable of filing for yourself down the line.
Long story short, no CPA, no matter how brilliant, can unload the responsibility you have personally to be organized and informed about your tax situation.
We hope these recommendations were helpful! How do you file your taxes? Have you switched from one method to another? Share your thoughts below so we can learn from you!
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