When I was thinking about what to write in this week's Katana, I suddenly shouted out, “Crap! Taxes are due soon!” This is the first year where I actually owe money to the government and I'm not too pleased. For all intents and purposes, I should be happy that I got a free multi-thousand loan for the year. But, it just feels off. A typical personal finance blogger will argue that it's stupid to celebrate a tax refund. But, I'm telling you to go right ahead. Tax refunds are good for most people because most people can't save for cookies!
Taxes Are Due Soon!
Even though taxes are due soon, I'm waiting until the absolute last moment to file. Why? Because I constantly find errors in the way I'm doing my returns. There's no doubt in my mind that every single tax return submitted by an individual has at least one error, or sub-optimal input. I generally go over my taxes at least three times before submitting them. It's in my nature to double and triple check everything when it comes to money.
Doing your own taxes forces you to learn a tremendous amount about your finances. It heightens your awareness, leading to better financial decisions. You learn about things such as deduction limit phases outs, rental property amortization, and alternative minimum taxes all too well.
Once you understand how much income leakage there is, you'll join the side which wishes for a fair flat tax and a smaller, more efficient government. Too many people just blindly follow what their accountant tells them to do without fully understanding where their money is going. That's irresponsible.
#1 Tax Tip
My #1 tax tip for everyone is to do your own taxes at least once. Even if you make mistakes, which you will, you'll be a better person because if it!
Readers, how many of you do your own taxes? Are you freaking out that taxes are due soon? With tax software making things relatively simple nowadays, why not try it out on your own if you don't now? Taxes are typically due April 15th each year, give or take a couple days if it falls on a weekend.
HIGHLIGHT POSTS FROM AROUND THE SPHERE
“Beware Of The Four Horsemen Of Personal Finance” by Len Penzo, who finally joins the crew. One of the wittiest PF writers around.
“How I Paid Off Over $70,000 In Debt And Quit My Job” by Eventual Millionaire highlights her journey in becoming debt free and reaching financial freedom. Love reading triumphant stories!
Further Reading
After “Doing Anything You Can To Survive“, I'd like to touch upon topics of discrimination and why it exists. Are we a product of our upbringing and how we were raised? Do old habits die hard? Hope you all can join in on the discussion as these topics pertain to all of us. Here are some additional posts for further reading.
- The Average Tax Refund And How To Spend It
- The Best Thing About Trump’s Tax Plan: Earning Business Income!
- The Largest Tax Refund Request Ever! Plus Tax Tips For Small Business Owners
- The Property Assessor Always Wins In A Bull Market – Filing An Appeal Is Useless
- Dealing With The Guilt-Joy Of Raising Taxes On The Rich
- Taxes Suck And Make Me Want To Shut Down My Small Business
And one last reminder: don't forget – taxes are due soon!
Keigu,
Sam @ Financial Samurai – “Slicing Through Money’s Mysteries”
Follow on Twitter @FinancialSamura
Ah, taxes; I’m so glad that they are done with for the year. Here’s hoping the people in Washington finally decide it’s time for a simplified tax system (I’m not too optimistic, but a guy can hope).
Back when my finances were REALLY simple I used to just do them myself by hand…actually going through the instructions and using hard copy forms and a pen. These days I use TurboTax which saves a good deal of time and trouble. Plus it caught a few things I would have missed so I ended up alright!
.-= Mike @ Saving Money Today´s last blog ..35 Free MP3 Downloads No Strings Attached =-.
For MOST people, doing one’s own return should be normal. If one starts a rental or a business, the softwares can mess things up seriously. I wish 1040EZ and 1040A prep. was taught in high school civics.
Dear Admin, Yes ,I’m a 30-yr.cpa. If I didn’t KNOW that I could do complicated taxes better than most folks who buy a software, I’d close shop. I see people screw up using all those softwares regularly. However, your point about doing one’s own taxes is valid for most people also. Why 1040EZ and 1040A’s aren’t included in high school U.S.govt./civics class, I don’t know; they should be!
Nobody should understand your own tax return more than you do yourself. A cpa can help.
Do you think that you know how to fly that tax software as well as an experienced cpa? Whom do you ask for advice during the rest of the year? A cpa should help you understand your own taxes and finances well, not just throw you a return and say, “Sign here.” Maybe you have time to grow your own vegetables, rebuild your own car engine and do everything else yourself too, but using a pro saves time and money and expedites your financial education all year long. BTW, the USA already HAS a flat tax; the 26/28% Alternative Minimum Tax. It isn’t enough. Anybody out there know who benefits from “regressive” tax structures? My guess is, it isn’t you.
Doug, most people don’t need a CPA to do their taxes. With the advent of smart tax software, if you have a basic return, including income, rental property, mortgage, student interest, these programs make everything quite easy. Every step of the way, they explain why and what you are doing.
I’m assuming you are a CPA due to your e-mail address, and there’s no doubt you guys ad value. But for the large majority of people, doing your taxes yourself at least once is good enough, with a cheap tax software.
Thanks for the mention, Sam…I believe in the flat tax! I’m gonna get hammered this year…
.-= Tracy´s last blog ..Unlearning the Lessons of our Parents =-.
I’m the exact same way i double check everything. i think that is a good thing especially for taxes.
i will also have to agree with you about smaller government = lower taxes.
Its not like im going to move to Canada so i guess i better just get used to it :)
Back when my finances were REALLY simple I used to just do them myself by hand…actually going through the instructions and using hard copy forms and a pen. These days I use TurboTax which saves a good deal of time and trouble. Plus it caught a few things I would have missed so I ended up alright!
.-= Mike @ Saving Money Today´s last blog ..35 Free MP3 Downloads No Strings Attached =-.
Sounds good Mike. It’s worth paying the $50 bucks or so to use TurboTax, HR Block or whatever. Time is money! I’m sure you learned A LOT though doing it by hand!
I use HR Block software. I remember the first year I was so nervous about doing it myself as I’d used a tax advisor for a long time, but I’m really glad I took the leap. It’s definitely helped me understand the importance of keeping receipts and keeping all my tax related papers in a folder throughout the year.
I think it’s beneficial to know how to do your own taxes, just because you’ll have a better idea of how much money you’re making, deducting, paying, and keeping. But there are also advantages to using tax software.
For instance, I guess I didn’t keep up to date with tax news this year, because I didn’t know most people qualify for the Making Work Pay Credit. If I had submitted a paper return, I probably wouldn’t have discovered and used it. However, since I used H&R Block’s free software, they automatically calculated it for me, which was a good find.
So I guess it’s best to do it both by hand, and using software. That way, you double check your work for potential errors or missed credits and deductions.
.-= Darren´s last blog ..Work Less, Live More By Bob Clyatt | Book Review =-.
My dad and I do my taxes together. Luckily, I’ve known how to fill out my tax returns for years, but he likes to “help.” If I were fully self-employed, though, I might think about getting them done by a tax professional.
.-= RainyDaySaver´s last blog ..Weekend Link Love: Untitled Edition =-.
Thanks so much for the mention!
Since my husband and I are both self employed we have someone do our taxes. That being said though, I have quickbooks and gather absolutely everything. I do hate spending $500-$700 a year to have ours done. I could learn how to do it myself, but feel that it is 100% worth paying for.
.-= Jaime @ Eventual Millionaire´s last blog ..Millionaire Series Part 1 – The WHY =-.
Your welcome! Best of luck on your journey to being a millionaire!
I complete my own taxes as it forces me to learn how each of my investments is taxed and at what rates. I am then better prepared to decide which investments should go in tax shelters and which should be un-sheltered to maximise my retirement investing portfolio returns by keeping the taxes to a minimum.
I also try and pay my taxes as late as possible. This means I can keep the proceeds in an account earning some interest. Every little helps.
.-= RetirementInvestingToday´s last blog ..Where is the economic recovery? =-.
Bingo, that’s exactly why I do mine. To learn and make more informed decisions w/ my finances. Those who don’t bother to learn are at a big disadvantage longer term. Cheers.
.-= admin´s last blog ..Wealth Is An Illusion Of Happiness =-.
We’ve always done our own taxes. We use TurboTax and it makes things a breeze. Mr. Not Made of Money keeps the tax file updated year round so it’s just basic data entry when tax time comes around. Lucky for us we live in Florida so no worry about state income tax…at least for now.
.-= Mrs. Not Made of Money´s last blog ..Friday Roundup – Planting The Garden Edition, Giveaways, & Great Reads =-.
Oh how I would LOVE to be based in Florida, with no state income tax, while making my current income. That would be great! Cheap housing ain’t a bad perk in Florida either!
.-= admin´s last blog ..Interviewing Is Like Dating – Hubba, Hubba! =-.
Impressive, and lucky you don’t have streams of documents filing in all spring like I do. There’s something to be said having a simple financial family picture!
.-= admin´s last blog ..Riding Rocketships For Greater Success =-.
Good good advice about waiting last minute to submit your taxes, because silly me, I submitted my tax return on April 2, and on the 8th, I got like.. 5-6 more investment slips in the mail! =(
.-= youngandthrifty´s last blog ..Weekend Ramblings and PF Blog Love =-.
Seriously, that has happened to me MANY times before.. getting a document or two after I already filed. Hence, from now on, even if I’m getting a refund, I’m waiting until the last week given my taxes are complicated due to my investments.
.-= admin´s last blog ..Interviewing Is Like Dating – Hubba, Hubba! =-.
I have always prepared my own tax returns and formerly used TurboTax. This year I switched to the free download of TaxAct, which worked fine as long as you can ignore the constant upselling. As for refunds, I don’t consider that “saving” as most people end up spending, not saving the refund. Then it just becomes an interest free loan to the government.
.-= Mr. GoTo´s last blog ..College Selection Time – The Student Loan Factor =-.
I use Turbo Tax – the best $50 or so I spend every year. Although, as I mentioned in a post I wrote last week, I do have a problem with some of their fees… $30 to deduct their fee from my refund? An additional $37 to e-file (on top of the cost of the software)? What’s up with that?
And I’m glad I finally joined the club. I’m always late to the party. I just got my first DVD player a couple years ago.
I still have an 8-track player in my car too. (Okay, that’s an exaggeration. I got rid of it last year too.) ;-)
All the best,
Len
Len Penzo dot Com
.-= Len Penzo´s last blog ..Black Coffee: My Favorite Blogs, Money News & Opinions #41 (Guess Who Joined the Yakezie Edition!) =-.
I’m fine with the fees. The alternative, doing things by hand is WAY WORSE! These guys deserve whatever they get. My alternative would be to pay $500 for some personal account. Forget about it!
.-= admin´s last blog ..Wealth Is An Illusion Of Happiness =-.
I do our taxes using H&R Block software (formerly Taxcut). I like that it imports information from the previous year.
I’m with you for a flat tax and get rid of all these loops that complicate the system. By the way, I withheld just about the right amount as our refund was in the $400 dollar range. I had to pay the state less an $100.
.-= Bucksome´s last blog ..4 Career Tips for Success from the Military =-.
I owe more for state too. It seems that the trend is most people OWE on their state return vs. Federal. I wonder why that is?
I think the reason for this is that states have a flat tax with little to no deductions, thus if you have a lot of other income besides salary from work, you will end up owing money.
The federal government allows for itemized deductions, energy credits, tax loss carry forwards, HSA deductions, first time home buyer deductions, etc. Thus, people end us getting more back from the federal government and owing on state taxes. This only is for states that have there own basis for calculating state income taxes. I know that in some sttates you pay your states tax as a percentage of your federal tax.
Fantastic analysis David! You are spot on here as I compared my Federal Adjusted Gross Income (AGI) to my State AGI, and my state was 20% higher or so due to the LACK of all these deductions.
.-= admin´s last blog ..Wealth Is An Illusion Of Happiness =-.
I just did my own taxes (my wife and I, married filing jointly, fed, state, local), without any tax software, just Excel to jot things down and do a little math. It was a major pain, and took me 3-4 days of a few hours at a time. I claim the standard deduction, and just had my and her earnings, two interest 1099s from banks, and 2 Health Savings Account sheets, so quite a simple return.
The actual work of adding the numbers is easy, but it’s understanding the tax rules which is so painful. Just to understand whether we owed a tax penalty or not–just reading that one paragraph–probably took an hour! (had they simply said, “If you paid more in withholding tax than all of last year’s tax, you’re fine” I would have been done much sooner.
I’m impressed you do it by hand. Now that is true learning of the tax rules, which is painful, but gets easier as time goes on. Rules don’t change that much, except when a new president is elected!
I first did it by hand and them did it using TaxAct. Then I filed for an extension electronically using TaxAct. I will need to look through all my receipts for my rental property repair last year to get a final number — my due amount won’t change (IRS will draw directly from my bank account) but I will nail down the carryover loss for future years.
.-= MossySF´s last blog ..I hate mosquitoes =-.
We did our taxes with TurboTax this year. I actually took a tax course this fall to get a better idea of how taxes work. I like going through the TurboTax interview so we can really see the state of our finances.
.-= Elle´s last blog ..Couple Money Weekly Round-Up: Samsung Moment Update is Coming =-.
Cool, good stuff Elle. The Tax softwares such as TurboTax and HRBlock At Home are so good now anybody can do it. There will be questions, but that’s where the fun and real learning begins.
.-= admin´s last blog ..Wealth Is An Illusion Of Happiness =-.
I am sure there must be a great free tax software to do your U.S. taxes.
For any Canadian readers of this blog, consider using Studio Tax @ http://www.studiotax.com which is absolutely free of charge and works flawlessly. I have been using it for two years now and this year will be my third year.
.-= The Simple Machine´s last blog ..You want to be Broke… =-.
I do my own taxes using Tax Act – I use Tax Act because I’m frugal/cheap. I don’t want to do them on paper and this is the cheapest software I can find – total cost to electronically file 2 returns (federal and state) was $15.95.
I own a house and my wife works as a freelance translator from home. We pay a lot more in taxes on my wife income then most anyone else would. Last year she grossed $40,000 and we netted about $38,000. You might say, “WHAT”? Well she works from home and thus there really are not that many “legal deductions”. Since I’m an auditor with the US Government (Social Security) and also a CPA – I do not want to take any deductions that are not 100% legal.
Most people if they just tried, could do there own taxes and save a lot of money, IMHO.
It could be argued BY doing your taxes you aren’t saving money you are losing money. For the average joe, you should be using Turbo Tax. It’s pretty basic stuff.
But knowing some of Sam’s financial situation he’s losing money. Not by missing deductions, but not setting up an efficient tax structure (ie incorporating).
.-= Investor Junkie´s last blog ..Monitoring Your Financial Independence =-.
There’s one thing missing though, and that is, I’m not allowed to incorporate and deduct my pet rabbit as a business expense. Maybe in 2020, but not now.
Wow, Tax Act is cheap! I will look into that next year.
When you say “she” grossed $40,000 and then “we” netted $38,000…….. do you mean “she” netted $38,000, so that she only paid $2,000 in taxes or 5% effective tax rate? If so, that rocks!
.-= admin´s last blog ..Interviewing Is Like Dating – Hubba, Hubba! =-.
What I meant to say is that my wife grossed $40,000 and I took about $2,000
in deductions and thus $38,000 of the $40,000 was taxable.
I’m sure that on average people that have gross revenue of around $40,000
take much much more than $2,000 or 5% in expenses.
Like I said, I’m being honest as it’s in my nature and also because I work for US
government and am a CPA.
For example, no write off for meals, as my wife did not have any business
meetings and no hotel expenses as she did not have to go anywhere
for business.