How to Be Your Own "Tax Guy"

As a former HR Block tax preparer I can tell you that their services is wonderful and the guarantees are top notch. Beyond that, most people could do their taxes at home with good tax software. Going to HR Block might cost you $200 while doing it yourself would cost you $20-$50 in software and filing fees.

If you don't have any tax experience at all, I recommend taking the tax preparation classes offered in the summer and fall. These will teach you 90% of what you need to know in order to do your own taxes. As an added bonus, the tax preparation companies recruit out of these classes for their seasonal employment.

If it's too late to take the classes, what else can you do? If your income is low enough you may qualify for a government program to prepare your taxes for free. Check the IRS web site for free tax preparation to see. You can also ask around to see if a friend, family member, or acquaintance could help you. Chances are you know someone who could do your taxes for free or nearly free. Of course, you could also do it yourself. If you go this route, be sure to purchase good tax software to make sure that you are getting the best deal possible.

Now how do you make the switch from having your taxes done to doing them yourself? First, be organized. Save your receipts and write things down. Get a form 1040 and just read it over. If any of that sounds familiar then look up more information on the IRS website. Each of those lines means something. It could mean you are entitled to a larger return or that you owe more money.

Some common things that you need to save are:

W-2 (wages)

Previous year's state refund if you itemized. If you aren't sure, look at the packet from last year (you should always save these packets for at least 3 years) and see if there is a Schedule A in the federal return. If there is and you got a refund from your state you may need to pay some taxes on that. Your state will send you a 1099-G if that is the case.

Bank interest. Your bank should send a 1099-INT. If not look at a statement and see how much interest it earned throughout the year.

Student loan interest. If you used loans to pay for school and have started paying them back, the interest you pay on those loans can be deducted. You should be getting a form every year that has that information.

Tuition if you are in college. If you are still in school, the tuition may count as a deduction or credit depending on your income. Your school should send a form but if not save receipts when you sign up for classes. Unfortunately the cost of books will not help here.

Receipts for day care costs. Also try to get the SSN or EIN, address, phone number, name of the provider.

Any money you put into retirement savings. The most common is a 401k which is pulled from your wages.

Those are the easy ones. Generally you will be sent all of that information every year by someone. The harder part is Itemized Deductions. The government gives people a standard deduction every year but there is an alternative. You may be able to get a higher deduction if the amount you spend on certain things exceeds the standard deduction. Often, you will have to save receipts and add them up yourself. It is made up of things like:

Medical expenses. Do not include any expenses that were either paid by somebody else you were later reimbursed for. But save everything. Insurance premiums, co-pays, prescriptions, the miles driven for treatment, any out of pocket expenses including eye and dental care. Also don't forget about prescription glasses. Very few people will qualify for this on their federal return because it has to be above 7.5% of their income. But some states do not have that requirement so it may help on a state return.

Real estate and property taxes. This includes the taxes you pay on your home, your car license tags, etc. The real estate tax should be included in your mortgage form and the tags just save the part you don't mail in.

The interest you pay on your mortgage. There are rules about this if you have multiple homes and rent on an apartment does not count unfortunately. This is usually the deciding factor on whether or not a person will itemize. The standard deduction for 2008 is $11,400. So to itemize you have to be above that. Many mortgages will have $5000-$8000 in interest so that is a huge portion of the $11,400.

Charitable donations. Get receipts for these and have them signed and dated. The IRS has been cracking down on donations lately so make sure to document these carefully. If it is a noncash donation show how the value was determined. The most common one was thrift store appraisal. If you take something to Goodwill they should give you a receipt estimating how much it is worth.

Receipts from big ticket items that were destroyed or stolen. This is a hard deduction to get so unless it is about as expensive as a car or more expensive than chances are this will not help. It is still a good idea to save those receipts just in case.

Unreimbursed employee expenses. Record your mileage (if you have to travel between multiple locations for work or have multiple jobs this may be deductable), any other travel including hotel costs and food, some uniforms, union dues, required classes, required equipment, etc. There are many articles about this and tons of information on it at the IRS website. When in doubt if something is spent for work, save it. Worst case scenario, you can shred it later.

Tax preparation fees from previous year. The interest on the loans does not count. Just the fees for actual preparation.

Moving expenses. Same as your employee expenses. Save everything. Your hotel receipts, your mileage, the cost of the movers, everything.

Once you have the software and you have gotten your paperwork organized it is time to sit down and do your taxes. Don't wait until the last minute to do them since you may have questions that require some research. Go through everything carefully and double check it when you finish, then file and you're done!