Monday, October 8, 2012

Knowledge that Helps Me Do My Own Taxes

I’ve been doing my own taxes for nearly 20 years now, so my tax related knowledge has been given time to grow and evolve slowly over those two decades. I have added to and built this knowledge a little bit at a time, moving from a 1040EZ form in my teen years, to a regular 1040 with multiple schedules and attachments these days.

While I’m not claiming to be a tax professional by any means, I’ve found that having knowledge regarding certain aspects of my personal finances, helps to do my own taxes each year.

The Ability to Follow Directions
Sure, following direction sounds simple right? But for many people (especially some men I know) it’s not that easy. They’d prefer to just jump into a project without reading the instructions, and doing that with one’s taxes could lead to some major issues.

I methodically read the directions for most steps involved in our state and federal taxes each and every year. Just because I assume the steps will be the same as last year, doesn’t mean they will be, and even if they’re similar, even a slight variation could throw my numbers off or cost me a valuable deduction if I’m not paying attention and aware of the instructions.

Introspective Finances
Knowing our family’s own financial situation also helps me do my own taxes. Again, this might sound like common sense; however, having a good grasp upon things like our overall combined income, investment returns, and possible deductions we might be eligible for such as mortgage interest, student loan interest, child credit, self-employed health insurance premiums, and similar items, makes it easier when tax time comes to gather all such information together and ensure that I have everything ready and prepared before I begin.

Financial Tracking
Not having to scramble at the last minute to collect all of our tax information and documentation certainly makes things a little easier come tax time. By keeping up with tracking and retaining information related to income (since I’m self-employed), taxes owed, deductions related to charitable donations, business expenses, and similar items, and keeping such information in an easily located and reviewable file, I make my tax life come year’s end, just a little easier to handle.

Keeping Up with Changes to the Tax Code
While I don’t spend hours studying the U.S. tax code each year, I do pay attention when I read about adjustments to certain items that may affect the taxes we pay. For example, the payroll tax reduction has paid off by boosting our income, and it will make a difference in the amount I withhold as a self-employed individual. Also, there was an increase in the Illinois income tax rate from 3 percent to 5 percent this past year, which might not seem like a lot, but it’s a 66 percent increase over the previous year, so it could mean a big bump up in how much we pay.

Having a grasp upon such changes as they occur takes some of the surprise out of tax time when I suddenly realize that certain things may have changed -- either for the better or worse -- compared to last year.

Having a Tax Background
No, I don’t have an education related specifically to taxes or tax law, but by doing my own taxes since I was a teenager, over time I’ve evolved my tax education as my tax needs and situation evolved.

Starting doing my taxes at a young age -- when my tax situation was much simpler to understand and handle -- built confidence in being able to complete the task of doing my own taxes each year and took some of that fear that many people encounter with completing such a task, out of the equation. Every year, I’ve had to learn something new relating to my taxes, which was nice in a way since it didn’t come as a shock having to learn it all at once. As my tax requirements grew and evolved, so did my tax background, which allowed me to build my knowledge regarding a variety of tax issues over the years.

I’ve already helped one of my brother-in-laws start to learn how to do his taxes, and I plan to start my own son on a similar path to mine early on so that he’s competent to do his own taxes as well.

 


Disclaimer:
The author is not a licensed financial or tax professional. The information provided in this article is for informational purposes only and does not constitute legal, financial or tax advice. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.



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