How to Do Your Taxes for the First Time

Beautiful Life

I finished my 2013 tax return late last night with both federal and state return acceptance confirmed this morning, now just waiting for federal and state refunds to be electronically deposited into my bank accounts.  I am quite joyful.  Some of us may try to finish tax return in the last minute by April 15, 2014 (tomorrow), so I would like to share my experience, hopefully to speed up your tax return filing and error-free.

*** disclaimer: I am not a tax consultant, and I do not work for TurboTax.  I have filed my/our US tax return for the last 10 years using TurboTax Download version with each time accepted by Federal and State within 24 hours.  I can not speak about other tax softwares such as TaxAct because I have not used them.  The following is based on my personal experience.

1. Should you file tax online or use download version?

In terms of price for one family/household, online version would be cheaper. Two of the choices are:

  • e-file Free Federal tax return if you qualify for 1040EZ (simply income, no mortgage or stock investments)  Otherwise, the price is still cheaper than TurboTax online version.
  • Or TurboTax Online

I prefer software download version, because I do not prefer to save my pertinent financial data in a third-party website.  Each time my tax return is finished, all financial data in my computer would be permanently deleted.  Another main reason is that a good friend of mine works at Intuit so she could legally purchase a software download copy $20 for TurboTax Home & Business after employee discount for her friends.  The price is already cheaper than any online tax software.

You can purchase a software copy from stores such as Costco, Target, Walmart and Staples.  Software prices vary among these vendors.  This year TurboTax has an extra offer 10% discount for purchasing Amazon gift card using refund money.

There is also a free software version available from IRS.  If this is my first time filing tax and there is no large discount to purchase TurboTax software, I would opt for online version.

2. Why not simply pay a tax consultant to handle tax return?

  • Save $: A good friend who is a tax consultant quotes $300 for our tax return, as our case is not as simple as 1040EZ yet still within my financial understanding.  $300 vs ($20+$29.99 State Tax Return + my time).
  • Tax Fundamentals: Filing the tax return myself helps us to make better financial planning, for example, tax break incentives for water conservation, electric car purchase, energy efficiency tools, tax laws regarding long-term capital gain benefit, mortgage interest and property tax deduction, charity donations, loss carry-over.  Tax software such as TurboTax walks me through step-by-step for each item.  I can use TurboTax to determine how many tax exemptions I should have in order to owe IRA a couple hundred dollars every year.
  • Paperwork prep consumes 1/3 of time:  the part that any average tax professional can not help you is that you are the one to inform yourself or tax consultant what bank accounts you have or what charities you have made offer.  I definitely would not want to share my account usernames and passwords for those accounts.  Therefore, I would need to make sure all print-outs of Form 1099s are ready for the tax consultant.
  • Personal Preferences: my tax return is not very complicated yet that TurboTax can still handle well.  If you are extremely busy to file tax return or own rental properties, trust fund distribution, or have complicated stock investment situation, paying a reliable and professional tax consultant may worth it.  In those cases, a tax consultant may charge +$1000.

3.  Is it required to receive tax refund electronically?

No, you can receive rebate check via post mail.

4. What if I have questions when filing my own tax return?

Both online and download version has links to TurboTax community.  The easiest way I use is to type in keywords in Google search.  For example, my 2013 CA State Tax reported inaccurate HSA contribution from my company.   Then I found this fix.

5. What else to know if using download version?

Beside saving the tax report in pdf file at the end of filing return, I always save the tax return meta data also (.tax file), and email myself both the .tax and .pdf files.  Then, remove the .tax and .pdf files from your computer.  When next year tax return season comes, I can decide to use online or download version, or use the same computer.

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