The Wall Street Journal – July 13, 2020
Most Americans are horrified by the idea of doing their own taxes, without help from a professional or computer software. Not Catherine Fray.
Ms. Fray is excited when filing season opens in January. She eagerly awaits the arrival of each new document, such as a W-2 or 1099 form, to pore over its details.
A special treat is when she gets to tackle a new form because of a change in the law or a shift in her income. This year that was Form 8995, for claiming a deduction for “pass-through” businesses such as partnerships, added by Congress in its 2017 tax overhaul. Ms. Fray was fascinated by its 1½-page flow chart that almost seemed designed to overwhelm filers doing their own taxes. The deadline to file and pay 2019 federal income taxes is July 15, 2020.
“I actually enjoy doing my tax return. I like to dig through the rules of big complex systems and see how they work,” said Ms. Fray, a 34-year-old tech consultant from Carrboro, N.C.
She has been doing her own returns since nine years ago, when she stopped paying a professional tax preparer. She fills out the Internal Revenue Service’s forms on her computer with help only from a calculator.
Ms. Fray is not alone, but she is rare. According to the IRS, about 95% of the filers of 155 million individual income tax returns get assistance in preparing them, either from a human being or tax software. The other 5% forgo advice and go mano-a-mano with the IRS’s 170-plus forms and instructions, plus scores of worksheets inside them.
They refuse to be intimidated by mutual-fund dividend reinvestments, depreciation recapture, foreign tax credits or partial deductions for an individual retirement account. Some, including Ms. Fray, finish up by e-filing the return through a free IRS program that provides no advice.
Many others mail in paper returns, taking care to submit letter-perfect forms.
“If you have scribbles or cross-outs or use Wite-Out, it could send a message that you didn’t know what you were doing,” said John Reichmann, 57, an analyst at an electric cooperative from Tucker, Ga. He has been doing his own taxes since 1980.
Like Ms. Fray, these folks often say they find the process fun. Brian Kressin, a 49-year-old who works for the U.S. government in Saudi Arabia, and who has been doing his own returns for 19 years, said he likes seeing the piles of documents spread out around him on the table.
“It’s like a big puzzle, with real money involved,” he said.
Valerie Eads, a New York City professor who studies medieval warfare conducted by women, started doing her own taxes eight years ago when her preparer raised fees.
“I said to myself, ‘You can footnote in five languages and can’t do a tax form? It’s time!’” said Dr. Eads, who is in her mid-70s.
She rechecks the figures at least twice to make sure the arithmetic is right.
Chris Alspach, a 43-year-old oil-and-gas attorney in Midland, Texas, is another filer who likes to save money, so he didn’t mind taking an entire weekend in February to prepare the federal return for himself and his wife.
Mr. Alspach also shops for clothes at thrift stores while on vacation, reuses the plastic bags that cereal comes in, and rented an apartment close to his office so he could walk to work. “Not many people do that in Midland,” he said.
Those who forgo tax help often say they prize what they learn by doing their own returns. Chris McKelvey, a 36-year-old government worker from Roanoke, Va., said he looked into a tax-favored Health Savings Account after noticing a deduction for it on the 1040 instructions for several years. That led him to enroll.
Art Prunier, a ceramics engineer from Midland, Mich., credits doing his own taxes for leading him to a key retirement insight.
“I learned that tax planning is the center of retirement planning, and I was shocked to see that good tax planning could increase my lifetime retirement income by 50%,” said Mr. Prunier, who is 66—and retired at 53.
His most important strategies involve making tax-efficient Roth IRA conversions over many years, avoiding higher Medicare premiums based on income, and managing his relatively large charitable contributions.
Some tax knowledge comes at a high price, at least in time. Jared Haines, a 30-year-old state-government attorney in Oklahoma City, sold a home last year. Because he had rented a room in it to a friend, and had taken $533 of depreciation on it, he had to give up a small part of the $250,000 exemption sellers are entitled to on the profits from a home sale.
Figuring the disallowance, for which there is no shortcut, took him 20 hours, while the rest of the return took about five hours.
“Still, it was a fun exercise,” he said.
Having tax knowledge can provide social benefits. Mr. Kressin in Saudi Arabia, who manages seven U.S. rental properties from abroad, is frequently asked by friends to review Schedule E rental real estate forms that tax professionals prepared. He recalls a case in which the preparer neglected to take depreciation deductions for several years. Correcting this saved his friend $3,000, he said.
Matthew Kneiser has become the go-to person in his circle for advice on handling Restricted Stock Units and Employee Stock Purchase Plans, which are common at tech firms.
“Lots of people pay double taxes on those benefits because the rules are so complicated. I feel empowered knowing how the pieces work,” said Mr. Kneiser, a 28-year-old software engineer in Seattle.
When Mr. Reichmann in Georgia was dating the woman who’s now his wife in the early 2000s, he offered to check her tax return and she agreed.
“She hadn’t taken her full deduction for state and local taxes, and I convinced her to file an amended return, which she didn’t know existed,” said Mr. Reichmann. “She got a few hundred dollars back,” he said. “After that, she knew we were destined to be ‘Married, Filing Jointly.’ ”
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This article was written by Jennifer Barrett from Forbes and was legally licensed by AdvisorStream.
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