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When does it make sense to prepare your own tax return?

If your income is less than $66,000 then it is easy to file your tax return on your own. This service is free and available online. See these resources for details.

Early indications I’ve read from comments by other tax accountants of the promised ‘post card return’ indicate that this approach would result in a payment of a higher tax than traditional and more diligent methods. It seems counter-productive to bypass the available technology in favor of an ‘old school’ paper postcard, assuming that is even possible, but probably not the best approach for anyone. This is a new fling format so we don’t have enough information to comment further.

For those who fall in higher income categories, it seems clear that most taxpayers can reduce their income tax liability by hiring tax preparation. Tax planning combined with tax preparation saves the most taxes. My anecdotal observations, published in other blog posts, is that each dollar spent in tax preparation results in about $3 in tax savings. The return on investment in professional tax planning is even higher, typically more than a tenfold over time. That process takes more time and requires a higher investment so is primarily used by upper-middle income and upper income taxpayers. The problem I see most often is that middle-income people confuse the casual advice given by a tax preparer as actual tax planning. It’s not; the two processes are conducted on a different scale.

Overall, about half of all taxpayers prepare their own tax return and about half use professional help. In higher income categories, the portion that rely on professional help is significantly higher.

As a practical matter, it seems that more lower income taxpayers would benefit by using free online government tax fling services. It’s much more clear that higher income individuals substantially benefit when they opt for professional help with taxes.

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