What's The Best Way To File Your Taxes? It Depends

Mar 9, 2017
Originally published on March 15, 2017 8:50 am

The deadline this year to file tax returns is April 18, and thousands of people have already started. But for those who have not, what is the best way to complete the complicated string of forms without missing any refunds or payments?

Here & Now‘s Jeremy Hobson speaks with Dennis Ventry, professor of tax law at the University of California Davis and vice chair of the IRS Advisory Council, about how to determine the best way to do one’s taxes.

Interview Headlines

On whether it’s better to file taxes yourself or go through tax professionals

“Well, it totally depends on your particular situation. The kind of questions you want to be asking — some are personal, some have to do with your income. If, for some reason, you would want to sit down across the table from a tax professional, just look that person in the eye, have an ongoing relationship with that person throughout the tax year, which is usually how it works. If things go really bad, you can sue them a little bit easier. On the flip side of that — and really driving the tax professional versus tax prep software — a very large component should have to do with the taxpayer’s income. If you have very, I call them ‘simple returns’ or ‘unsophisticated returns’ where most of your income or all of your income comes from wages. If you don’t have capital gains or royalties or things like that then a tax-prep software, either fee based or free, would be the way to go. Then if you are, in fact, thinking about the software route, there is even more fine-grained considerations. The free-based software is really only available to a certain sector of taxpayers, but not to all taxpayers.”

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On whether the tax professional gets you more deductions

“Well, for the vast majority of taxpayers… First of all, as a threshold matter, only 30 percent of taxpayers take itemized deductions. The other 70 percent of taxpayers, it’s actually closer to 71 percent. Take the standard deduction. So, in terms of finagling the system or having somebody who knows a backdoor that the software can’t identify, that’s really not a legitimate reason to go to a tax professional route. There are other reasons to go to the tax professional route, but that’s not one of them.”

On how often people overpay when using a tax professional

“It depends. I think more than anything it has to do with the sophistication of your return. If you have a return that is, let’s say, under $60,000 of adjusted gross income, you don’t itemize, or you might itemize a little bit… You don’t have a whole, you haven’t sold the home, or you don’t have capital gains. If that’s the case, then I’ve maintained for a long time that there’s no reason why those folks should pay a dime for filing their taxes, whether it’s to a software provider or to a tax professional. Because those returns, the information on those returns, the government has the vast majority of that information in the form of your W-2, your third-party reporting, what you told the government the prior year. Things like that where you would only need to provide some additional information most of the time, such as your tax filing status is changed, if you’ve gotten married, divorced, if you have another child, if you change jobs. In my state of California, we have a program called Calfile that’s been around now for about 10 years, and it’s for filing taxpayers’ state income tax returns. And it’s an online, free electronic filing software. The income thresholds are actually really high, it’s $180,000 roughly for a single taxpayer, double that for a married couple, you can itemize you can claim the standard deduction, you can have interest and dividend income. All sorts of things. It doesn’t include all taxpayers. But we’ve had it in California now for close to 10 years, and it’s worked incredibly well.”

On whether it’s feasible to simplify the tax code

“No, that will never happen. But that’s not going to happen for a different reason. That’s not necessarily going to be Congress saying that the Feds couldn’t get in the business of preparing returns, assisting taxpayers with repairing their returns. But more to your point, for instance, the last postcard return of whatever they’re calling these days that I saw only had two itemized deductions left on it, out of about 225 special dispensations that total about $1.4 trillion a year in lost tax revenue. The only two that are that would remain would be the home mortgage interest deduction, and the charitable contribution deduction. That means you’d have to take out more than 200 of those tax expenditure items, each of which has constituencies that benefit from it, and that would fight tooth and nail before those got taken out of the code.”

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