How Hard Is It to Do Your Own Taxes?

The difficulty of preparing your own tax return hinges entirely on the complexity of your financial life. For many people, the process is straightforward, but for others, it can be a significant challenge. Understanding the factors that contribute to this complexity can help you decide whether to file your taxes yourself or seek professional assistance.

Factors Determining Tax Filing Difficulty

The complexity of your tax situation is the primary determinant of how hard it will be to file. A simple return generally involves income from one or two employers and taking the standard deduction, which is a fixed amount you can subtract from your income. If your financial life remains consistent without major changes like marriage or the birth of a child, DIY filing is manageable. Claiming common credits, such as the Child Tax Credit in uncomplicated cases, also adds little difficulty.

The difficulty escalates with more varied financial elements. Receiving income from multiple sources, such as freelance work, is a complicating factor that requires accounting for self-employment taxes. Investment income, like dividends or proceeds from selling stocks, introduces the need to calculate capital gains or losses. Other income sources like rental property income or Social Security benefits also add layers of complexity.

Your choice of deductions also impacts the difficulty. While the standard deduction is simple, itemizing is more involved. Itemizing requires you to track and substantiate expenses like mortgage interest, state and local taxes up to the $10,000 household limit, and significant medical costs. You must keep detailed records and receipts for these expenses.

Claiming certain tax credits can make filing more challenging due to intricate eligibility rules. Education credits, such as the American Opportunity Tax Credit, require specific enrollment and income requirements. The Earned Income Tax Credit also has a complex set of rules based on income, filing status, and qualifying children.

Other situations that add complexity include making contributions to a Health Savings Account (HSA) or owning a business. Engaging in cryptocurrency transactions or having financial accounts in foreign countries also introduces additional regulations you must navigate.

Essential Information and Documents for DIY Filing

Before you begin filing, gathering all the necessary documents is a step that can save you significant time and prevent errors. Having everything organized ensures that you can complete an accurate return and claim all the deductions and credits you are entitled to. While the specific documents you need depend on your circumstances, several items are common to most filers.

You will need personal information for yourself, your spouse, and any dependents, including full names, dates of birth, and Social Security Numbers (SSNs). Have your bank account and routing numbers ready for direct deposit of a refund or direct debit of taxes owed. A copy of last year’s tax return can also be a useful reference.

Most of your documentation will relate to income, with forms arriving from payers by the end of January. The most common income document is the Form W-2 from your employer. Other forms you might receive include:

• Form 1099-NEC for self-employment or contract work.
• Form 1099-INT for interest income.
• Form 1099-DIV for dividends.
• Form 1099-B for sales of stocks and other securities.
• Form 1099-R for distributions from retirement accounts.
• Form SSA-1099 for Social Security benefits.

If you made contributions that lower your taxable income, you need records of those payments. This includes statements showing contributions to a traditional IRA or an HSA. These are adjustments to income that can reduce your tax liability even if you do not itemize.

For those who itemize deductions or claim specific tax credits, additional documentation is necessary. This includes Form 1098 from your mortgage lender showing interest paid, records of property taxes, receipts for charitable contributions, and records of medical expenses. You will also need Form 1098-T, which reports tuition payments for education credits.

The Process of Filing Your Own Taxes

After assessing your tax situation and gathering your documents, you can begin filing. The process involves choosing a filing method, entering your information, reviewing the return for accuracy, and submitting it to the IRS.

The first step is choosing how to prepare and file your taxes. One option is IRS Free File, a partnership between the IRS and tax software companies allowing eligible taxpayers to file federal returns for free. For the 2025 filing season, eligibility for guided software is based on your 2024 adjusted gross income of $84,000 or less.

The IRS also offers Free File Fillable Forms, which are electronic versions of paper forms that anyone can use but provide no tax guidance. Another choice is to purchase commercial tax software, which offers user-friendly interfaces. Mailing paper forms is still available but is the slowest option for processing and refunds.

After selecting your filing method, you will enter your financial information. Most tax software uses a question-and-answer format, prompting you to input data from your documents like W-2s and 1099s. The software then uses this information to fill out the appropriate forms and calculate your tax liability or refund.

Before you submit your return, it is important to review it thoroughly. Tax software provides a summary of your completed return, which you should check for accuracy. Pay close attention to personal details like names, Social Security numbers, and bank account numbers, as a simple typo can lead to processing delays. Double-checking the income and deduction figures you entered can also help you catch mistakes before you file.

The final step is submitting your return. E-filing is the fastest and most secure method, and you should receive an email confirmation that the IRS has accepted your return. If you owe taxes, you can schedule a direct debit payment. If you are due a refund, providing your bank account information for direct deposit is the fastest way to receive it.

When to Consult a Tax Professional

While many people can file their own taxes, some complex situations warrant the expertise of a tax professional like a Certified Public Accountant (CPA) or an Enrolled Agent (EA). Hiring a professional is a wise investment in scenarios where tax laws are nuanced or the risk of a costly error is high.

Professional help is recommended if your financial situation includes certain complexities. Business tax returns, for example, involve calculations for deductions, asset depreciation, and payroll taxes. Managing rental properties also introduces challenges like tracking income and expenses and calculating depreciation. Consider hiring a professional if you have:

• A high volume of investment activity, are a day trader, or deal with stock options.
• Transactions involving cryptocurrency, which have evolving tax rules.
• Major life events with tax implications, such as a divorce or receiving a large inheritance.
• Income from foreign sources or assets in foreign financial accounts.

If you feel overwhelmed by the process or are concerned about making a mistake that could lead to an audit or penalties, hiring a professional can provide peace of mind. The cost of hiring a professional can vary, but it is often a worthwhile expense when your financial situation is complex. A tax professional can ensure your return is accurate and compliant, and may also identify tax-saving opportunities you might have missed.