Every now and then I get some curious emails. For example:
Hi, great blog! I was wondering, who does your taxes?
Strangely enough… I do. And I think you should too. (Yours, not mine.)
GCC tax history
Back when the Internet and I were both still a little wet behind the ears, taxes seemed a daunting task of monumental proportions. Audit! Penalties! Fear! Ahhhhhh!
I have H&R Block to thank for changing all of that. A harrowing experience in college sent me home with my shoebox full of receipts and a fist full of determination. This isn’t so hard… why did the “pro” have such a hard time?
Years later, the combination of a few too many economics books, the “specialization of labor” principle, the hubris of youth, and laziness, convinced me to outsource my tax return so I could invest those hours building my career.
$300 and untold hours of my time later, a “who does your taxes” referral produced a tax return I could have easily done myself. Once you get all of the paperwork ready for the CPA, the tax return basically does itself (*).
I’ve done my own tax return every year since.
One of my favorite things about doing my own taxes (besides the $ saved) is all of the
mistakes lessons learned.
One year I joined a new project at work on January 7th. On January 8th, I got on a plane to Japan. Over the next 8 months, I would fly over 300,000 miles and achieve(?) Platinum status with multiple airlines and hotel chains.
Did you know that if the IRS owes you a refund (the opposite is much better), you can just file your taxes whenever? Me neither. But when I filed my taxes that winter after getting off another airplane, I found out.
The next year I delayed filing again… but this time, my assumption that I was due a refund was… incorrect. And I have the penalties to prove it.
With each new tax form came new learning opportunities and new mistakes. As my own experience has increased, I recognize that I’ve made other mistakes over the years. Which makes me appreciative of another aspect of the tax code to which I was unaware… the statue of limitations.
The point being… there are great rewards on the other side of fear.
The reason we’ve paid no income tax for the last 4 years while reporting more than $400k of taxable income is because I have the battle scars from tax returns of yesteryear.
I think the best way to learn is to sit down with a pot of coffee, a pencil and eraser, and paper copies of the 1040 and i1040 documents. The instructions are incredibly dull, no doubt… thus the caffeine.
Ideally, one would start when taxes are relatively simple… before adding investments besides a 401k or IRA, rental properties, and/or side hustles. If you have those things, perhaps prepare a 2nd pot of coffee.
Then, proceed line by line through the 1040. The instructions are written with the assumption that we have no special knowledge or even math skills.
If you can read and use a calculator, you can do this.
My first few years of tax returns helped build the foundation of knowledge.
Later I had some gains and losses from trading stocks/bonds/options, and learned about investment taxes.
When I took a go at real estate investing, I learned about… real estate taxes.
Now I have Self Employment income, so my focus is there. I’m still learning.
Peel the layers of the onion one at a time, and eventually you get to the center.
Not everyone is interested in the details, and there are solutions that that as well. In fact, that is what I (mostly) use now.
What I Do Now
As I’ve matured, I’ve been unable to shake the hubris or laziness (or procrastination) that I developed in my youth. It’s a cursed existence. TurboTax helps. (affiliate link)
Now that I have side hustle and investment income, filling out all of the tax forms becomes a bit nauseating. TurboTax simply imports all of the investment information from my brokerage account, and all of the small business info from QuickBooks Self Employed (affiliate link.) An hour or so later, I’m done (I still drink coffee though.) Plus, the e-filing is easy.
I’ve filled out all of these forms manually many times, so tax time is fairly uneventful. And the 7 minutes I invest at the end of the year means I already know the outcome.
TurboTax does have its cons… mostly cost. Fidelity gives me a free copy for investment income, but I have to pay for an “upgrade” to process the small business forms (at least the cost is tax deductible.)
I’ve seen people comment online that they get TurboTax for free through their insurance company or employer as well. If you go the TurboTax route, those options may be available to you. And if your tax return is fairly simple, it is also free.
If anybody has other tips for free tax filing or other tools they like, please share in the comments.
(*) Full disclosure: a lot of CPAs disagree. Here is a comment to that point:
… you show you are an average person when it comes to tax knowledge… which is my main-point – don’t pretend to be an expert and give advice in a complicated area for which you are not an expert, but are merely average.
Personally, I’m cool with average. If an average person like me can do it, so can you.