It’s tax time again.

When we think about saving money on income taxes, we usually think in terms of increasing deductions, qualifying for tax credits, or putting more money in tax-exempt or tax-deferred accounts.

Let me offer a different approach. Many, far too many in my opinion, pay another person to prepare their tax forms. That increases the money spent on taxes, and may cost even more in lost deductions or lost tax credits.

I advocate preparing your own taxes. I don’t mean filling out multiple tax forms with pen and pencil and getting multiple publications from the IRS that often will drive you to another publication that will drive you to still another publication. I recommend using tax preparation software available at office supply stores or online. The two most common, and which I recommend are Turbo Tax and H&R BLOCK.

Why pay an expert to prepare your taxes?

If your finances are complex, that is if you own a business that is organized as a corporation or LLC, or have extensive securities transactions, then a tax preparer whos is an accountant may be right for you.

Why not pay an expert to prepare your taxes?

1. It costs money.
2. It costs time. Time to travel to and from the preparer’s place of business.
3. Only you know where all your relevant documents are located.
4. In many cases the “expert” understands the tax preparation software, but little about tax laws.
5. Some will offer you an “instant” tax refund which is really a high-interest loan for just a few days.

Why prepare your own taxes?

1. The only expense is the software which is probably in the neighborhood of $50, plus or minus, depending on if you have a small business, rental properties, or multiple investments.
2. The software, either H&R Block or Turbo Tax will walk you through the entire process, step by step. In many cases you will find deductions or credits you had no idea were available.
3. You can prepare your taxes at your pace. As the software makes you aware of ways to save on taxes, you may have to dig through your files for documentation. But you can do this on your schedule.
4. The software will minimize your chances of an audit by the IRS. If an entry is a red flag, the software will alert you so that you can make a correction.
5. You can file electronically and have a refund credited to your bank account in about a week.

Your Personal Finance is just that. Spending wisely so that you get the most from every dollar. Preparing your own taxes will save you money. It will also increase your financial literacy as you learn more about tax laws and regulations. That knowledge will, in turn, help you as you prepare for the year.

But tax planning is a year round task. Track every expense that may be deductible. Are you putting money aside in a tax deferred account? Do you support someone who may not live with you but is dependent on you?

Tax credits come and go – maybe you qualify for a tax credit this year. There are a number of credits associated with children and saving energy. Check them all out.

There is nothing patriotic about paying more taxes than your obligation. Nor is there anything shady about taking advantage of credits and deductions. So called “loopholes” were put there by your government for a reason whether we agree with them or not. Use every “loophole” you can.

Increase your income by avoiding as much tax as possible – just do it legally, avoid not evade. Tax avoidance is legal and may save you money. Tax evasion is not legal and may get you five to ten years.

One last comment. Many planners and advisers, I used to be one of them, will advise you to avoid a large refund by adjusting your withholding as close as possible to what your expected taxes will be at the end of the year. Our argument was that you are giving the government an “interest-free loan.” I have changed my position. I believe it is better to withhold too much and get a refund than to risk owing taxes at the end of the year. Besides, for many people a tax refund represents a way of forced savings. I can live with giving the government an “interest-free loan” if it allows me to put a lump sum towards my retirement that I otherwise might have just spent on lunch.