Using Excel to Do Our Taxes

I don't use tax preparation software to do my taxes.    I use Excel and create worksheets for each form I need, and then link the worksheets together as needed.

Here're the reasons I do that:

• I am cheap.  I don't want to pay $30-60 each year for tax prep software.
• I get a better understanding of how financial events affect my taxes, since I read each instruction to create a worksheet for a form.  Essentially, I am doing the tax return by hand, and using Excel to do the math calculations, which eliminates a major cause of errors.
• Using Excel allows me to easily run scenarios to determine how our tax liability is affected.  For example, I can plug in different numbers for Roth conversions to determine the best conversion amount, from a tax perspective.   Also, I can update the input information very quickly to get a real time estimate as the year comes to a close.

Of course, as many people point out, there are some downsides to using Excel to do my taxes:

• I may misinterpret the calculations on a form and enter an incorrect on Excel. I don't think this has happened yet.
• I need to update Excel each year if there are changes.  For many years, the same format was used.  However, recently, the IRS seems to be routinely changing the 1040 format and a few other forms on an annual basis.  This has been tedious chore in some years, causing me to delay doing our taxes.
• I may copy the number incorrectly to the actual tax form.  This has happened a couple times, but I was able to correct via a phone call.
• I may forget a new form.  This has happened once and I submitted form later.

For me, the pros outweigh the risks at this time.  I do expect that I will be less interested/capable as I get older, and may have to transfer the responsibility to a paid professional sometime in the future. 

However, for now, I will continue to do our tax returns by hand using Excel.

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This is not financial nor tax advice. Please consult a professional advisor.

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