Mo Money's Building Wealth Blog

It’s been frequently said that in life you can only count on two things – death and taxes.  I don’t know about you, but I do my best to avoid both.  Death is kindof a macabre issue so instead let’s talk about taxes.

Tax evasion is a crime, but thankfully tax avoidance is not.  I believe that the best way to avoid taxes is to understand how things like your income (salaries, interest, dividends, capital gains, etc.) and possible deductions (dependents, mortgage interest, property taxes, etc.) affect your taxes, and in doing so look to minimize your overall tax obligation.

One of my favorite snippets about write-offs (aka deductions for businesses) can be viewed here.  Though the clip is about business write-offs it summarizes well the general knowledge out there about deductions.  Send it to a friend the next time they call something a “write-off” as if the underlying asset being referred to is somehow free.  The fact of the matter is that write-offs are deductions that the IRS allows.  Nothing about them is free.  In the most basic sense, the IRS allows you to reduce your tax obligation by a percentage of the amount being used as a deduction (or write-off).

Anyhow, back to the gist of this post.  For most of us who don’t own a business, taxes are fairly straight forward.  We hopefully have a job, might own a house, and have children (aka dependents).  Pretty much everyone at year end has to settle up with the IRS.  For many it’s viewed as a yearly hassle and we prefer to outsource the job of preparing our taxes to an accounting firm or popup tax preparation service around the corner.  But is this really necessary?

I’ll offer that in most cases you can do your taxes on your own.  Here are some of the benefits:

• The ability to do them at your convenience and on your own timeline.
• Getting them done faster and getting your refund faster.
• Savings on the cost of professional preparation ( approx.. $250).  Let’s face it, you’ve done most of the work by gathering all of the W2’s and 1099’s.
• It takes most of the mystique out of the process.
• Increasing your Tax IQ – Understanding exactly how every source of income and every deduction affects the tax you owe.

My favorite tool of choice when preparing my taxes is to use the popular software program called TurboTax.  You can either download the software to use on your computer or alternatively use an online version.  What I like about TurboTax is that you have the choice to either have the program guide you through every step or alternatively pick and choose which sections you want to work on.  It also keeps a running total on the screen of either your refund or amount owed, and you can see how that total changes upon every entry.  And you can toggle between viewing the guided mode and the actual IRS forms being produced so you can see the impact of every item entered just as if you were manually entering them into the forms yourself.  It’s super easy and you can complete both federal and state forms then electronically transmit them.  Each might have a different fee based on the software package purchased but you’ll love the flexibility.

I’ve been doing my own taxes for 20+ years now and have no regrets.  I’ve learned a lot about the affect of changes in the tax codes and whether the politicians have helped or hindered my personal tax situation.  Ultimately it has allowed me to feel more in control of my finances and given me a better understanding of how and when to use deductions to reduce my tax obligations.  I encourage you to give it a try.  I believe that you’ll be pleasantly surprised.  And, if you’re still not comfortable you can always bring your completed forms to a tax professional to get their blessing (at a discount) before you submit them to the IRS.