Help me get started on my taxes? :D

[TopHatFox]

In principle, I know how to maximize tax efficiency. I've never filed before, however. Some deets:

1. I'll be filing for 2017 as a single filer with no dependents
2. Attended MA college for Spring of 2017, moved to NY, and worked a few W-2 jobs for the Summer-December of 2017 in NY
3. I had a 3 fund index portfolio (bonds + Int & domestic equity funds) w/ Vanguard for all of 2017
4. I have all of the W-2's I need to file already. Will I need any paperwork from investment accounts to file?
5. I maxed my ROTH IRA for 2017 (5.5K)
5. The govt. has taxed ~3K of income taxes on my ~25K gross income for 2017. I want my money back. >: )

So, what's the best way to go about this? I was thinking doing it all myself and then showing my work to a CPA to check notes. I'd prefer to do it manually rather than using TurboTax since I'll learn more that way. I'm thinking of using the Federal Reserve's website to file online since that makes the tax refund check come sooner. Will also need to file the NY specific tax form, somehow.~

Advice?

[jacob]

Google "1040 form irs" and print the pdf.
Google "1040 ins irs" and start reading. The instructions are excellent!

Get the correct year for both (2017).

Follow every trail down the rabbit hole. Understand the algorithms behind the math. They will show you where the breakpoints are and you will get the necessary experiental intelligence to start tax planning compared to if you just ran the numbers with software/black box. You should understand every single line (there are only 70+ of them) unless it's obvious it doesn't apply (e.g. homeowners stuff) ... but you might qualify for earned income credits and foreign tax credits, etc. So you should at least understand what the line is about.

Use a pencil to fill it out. Or maybe better, build a spreadsheet of the 1040 complete with calculations.

Do this before you do the state tax. Most states mimic the Fed forms and just have you transfer the numbers over.

A CPA is overkill for what you have. Some tax offices will verify the numbers for you (sometimes for free) as a way of getting new customers. If it's not free, it's cheaper to rerun the numbers with software. Since your income is low, some software may be free. Check IRS for that. Also if you are in doubt about one particular gnarly form, you can go into a tax office and ask/pay for just that form (I've done this with state forms when in doubt. The taxpro probably hates it since they have to enter all your numbers anyway). Or... you can just redo your math 10 times to make sure you got the comma right. Doing taxes is like doing 5th grade math except you MUST ace the test.

PS: You might be able to get away with filing 1040A. The 1040ins will tell you.

[jennypenny]

Do it yourself (on paper) to learn how to do it. If you're worried about making a mistake, use a cheap/free tax software package to do it as well and compare the two returns.

Vanguard will have all of the forms available later this month. You can download them. You can also import them into tax software, but again, I'd suggest doing it all yourself this time to see where it goes. If you got scholarship money for college, you'll get a form for that too (1098-T). If you moved for work (you did, IIRC) you can deduct those expenses, so start pulling that information together. If you made any charitable contributions (cash or otherwise), pull that information together. Contact the non-profits for receipts (many give blank ones that you fill out yourself and there are guides to assessing non-cash donations). How much did you spend on your orthodontia this year? Any medical bills over a certain percentage are deductible.

You most likely don't need to itemize, but I'd go through the motions as if you do to see how those deductions benefit you. It will help with future tax planning.

[Fish]

Jacob/jp beat me to it, but here’s another +1 for doing it yourself. It’s important to learn while your tax situation is relatively simple, otherwise it’s a much steeper learning curve to DIY later in life. I used TurboTax for many years before going back to paper last year, and I was confident about going back to paper only because I had experience doing taxes by hand as a college/grad student. I’m not particularly impressed by the quality of the form-filling done by software packages. If you ever must rely on software, always inspect the output (go line by line on each form, being suspicious of any blanks encountered) and correct any errors you find. At this level of effort for review, I think it makes more sense to do it all by hand.

[Removed duplicate advice]

At your level of 2017 income you probably qualify to use one or more tax preparation software packages for free. You can use that as a check after you work through the 1040. I don’t expect you can benefit much from optimization on your 2017 return, but you will be rewarded in the future by taking the time to learn about it now.

https://apps.irs.gov/app/freeFile/jsp/wizard.jsp

Edited to add:

Or maybe better, build a spreadsheet of the 1040 complete with calculations.

I did this last year and thought it was a worthwhile exercise. I even made it work for all the filing statuses. Post-return, it was a useful tool for determining the sensitivity of my income taxes to various actions I could take.

PS: You might be able to get away with filing 1040A. The 1040ins will tell you.

I would just get familiar with the full 1040 since you will likely be filing it in future years... doing taxes by hand is not really a time-saving endeavor and you may as well maximize the educational aspect of it.

[Scott 2]

What are you finding by hand that Turbo Tax doesn't?

I've always clicked through the Turbo Tax prompts, as fast as I can. It's a race! The worst part is gathering all the forms. After that, an hour or two for data input and verification. I like the time savings, easy filing, carry forward of data year over year, and centralization of records. The latter two benefits motivate me to even pay for state tax prep, which is very simple.

From what I can tell, if I pay a tax place $200 to do them, that's all they do anyway. It's their in house software instead of Turbo Tax, but same concept. I still have to bother with gathering all the forms, which is the worst part.

I asked the comptroller for a former employer, who did taxes on the side, if he could get me good savings over Turbo Tax. He didn't think so.

[jacob]

@Scott2 - I tried using Turbotax one year. IIRC, I gave up over inputting my options trades. That's some gnarly technical stuff with strange exceptions, etc. It was easier for me to just go back and do that by hand. The bigger problem as far as I'm concerned is that it hides the math(*) and just give you a final result. One year I didn't max out my 401k because I didn't realize that it was tax-deferred and what implications that specifically had for me. (Don't laugh. This was before pf-blogs really existed. Only factoid I had registered in my brain was about "getting the match".)

(*) Just from listening to regular people confusing their marginal rate with their total tax-burden ("The gub'ment takes 28% of mah monay!") suggests the underlying math is not understood.

[Zach]

+1 on the suggestion to do it by hand. It becomes a lot less intimidating once you understand all the inputs and outputs.

A few random thoughts on how you can get the best outcome, depending on your particular situation:

1. If you were in school this year, you could qualify for the American Opportunity Credit or the Lifetime Learning Credit.

2. If you had qualified dividends from your investments, be sure to compute your tax using the Qualified Dividends and Capital Gains Worksheet (found in the 1040/1040A instructions) rather than going directly to the tax table.

3. If your priority is to minimize your tax liability going forward, consider opening up a Traditional IRA: unlike the Roth, the contributions can be tax deductible up to $5,500.

4. Did you pay any student loan interest this year? You can deduct up to $2,500 of student loan interest paid from your taxable income.

5. Did you provide more than half of your own support during the first half of the year before you graduated school and started working? Some college students can still be claimed as dependents by their parents, but you would be eligible to claim your own personal exemption ($4,050) if you provided more than half of your own support.

6. At your level of income, your Roth contributions might qualify for the Saver’s Credit.

[Fish]

What are you finding by hand that Turbo Tax doesn't?

IIRC, there was a state tax worksheet where the numbers failed to account for the input from a lesser-used federal form. I found it one year when my state tax didn't match expectations. It had something to do with investment RE. For a more common tax situation of job + a handful of stock trades I don't see any serious deficiencies with TT.

Edited to add: Nice suggestions Zach!

[Scott 2]

Thanks for the clarification. With taxes being by far my biggest expense, I am interested in savings opportunities.

My financial life is relatively simple these days,we don't even itemize any more. I think I've picked up the details hand calculating would provide.

[jennypenny]

This is an older thread that discusses some of the issues with turbotax and taxcut ... viewtopic.php?f=4&t=6259

Easier than retyping the specific issues I've had with both products.

[EdithKeeler]

I have used TurboTax for years. They improve it considerably every year. I’ve already done my taxes this year and whizzed thru pretty quickly. One thing I especially like is that it saves everything from the prior year. So it says: “do you still work at X?” “Do you still rent our house Y?” And if things are the same there’s much less to complete.

I do have fairly simple finances: earned income, income from some index funds, a rental house, and an HSA. I do think there’s probably value in doing it on paper, in order to understand the process, but I’d double check on software.

(Been doing taxes since I was 15).

[IlliniDave]

I'm a long time Turbo Tax user despite the relative cost. My returns are moderately complicated. The one time I hired someone to do them, they got them wrong! I agree that THF should do his by hand. I did mine that way for many years (I predate the existence of readily available tax software) and it's good to understand how it all works, something best done while returns are simple.

[bryan]

I despise Intuit, yet have used TT in past years. I find myself doubting its accuracy (often correctly i.e. it's right 97% of the time, but that 3% makes you double check everything) and having to drill down too often (the interface doesn't advocate this usage). For the most part, any issues you hit in TT you can google and the first result will be a question in the TT Q&A forums with a good answer.

This year I should be doing it by hand (hmm, seems I recall I said something similar last year..) using last year's return as guidance. It will take me forever, but whatever. I tried TaxAct a couple years in parallel, but TT was better. Pity that these solutions suck as much as they do, for me.

If you mess up a little, you can always amend it next year.

[OTCW]

I used H&R Block the last two years. Back to paper for me. It saved a little hassle, but also had a lot of redundant inputs that got annoying fast.

[Scott 2]

That older thread is good, thanks JP.

[TopHatFox]

Bump as reference material