I decided to bite the bullet and do my income tax return without any professional assistance. I was originally considering working with a tax accountant due to the increased income from my side business. As it turns out, it wasn’t as complicated as I thought it would be. I’m pretty sure I was able to capture all my expenses to offset as much of that income as possible.
I took the standard deduction again this year as I don’t have enough expenses to qualify for itemized deductions. In the end, I owed about $3,000 to the federal government and about $1,000 to New Jersey. That’s quite a tax bill considering I increased my withholding from my day job last year.
I’m investing about $3,000 in a SEP IRA for 2006, the maximum based on my self-employment income, which significantly reduced my tax due. I’m going with Vanguard this time around because I meet the minimum to invest in VTSMX. My other IRAs are held by TIAA-CREF, but Vanguard’s funds are less expensive and TIAA-CREF’s service has not been great the past few years. I will likely invest a few thousand more with Vanguard this year to avoid the $10 annual account maintenance fee.
For 2007, I’ll be making quarterly estimated tax payments so I don’t end up with a big bill next April and to avoid any penalties. This was very easy to set up with the tax software. The payments are scheduled and my savings account will be automatically debited on the due dates.
This was the second year I’ve used TaxACT. The federal return is free to e-file, but there was a small charge to e-file the New Jersey tax return.
If I had worked with a tax accountant, he or she would likely have come to very similar results, as everything was very straightforward, and I keep decent records in Quicken. The benefit of working with a specialist would have been the chance to get some guidance about preparing for next year, now that I formed a corporation for my side business. I am anticipating that next year will be more complicated.
Updated February 6, 2012 and originally published March 25, 2007.