This post is sponsored by H&R Block.
In 2000, I paid a CPA $500 to file my incredibly simple tax return because I had no idea what I was doing. Granted, I had a lot of trades in 1999 to calculate since it was the dotcom mania back then.
After realizing $500 was expensive, I paid $250 for an H&R Block CPA to do my taxes and show me the ropes for a couple years. After getting comfortable with all the forms and jargon, I started doing my taxes myself using H&R Block’s tax software. They started with a CD-ROM that I had to buy at an electronics retailer, but now everything is online, thank goodness.
I’m probably never going to pay a CPA to do my taxes again because H&R Block’s tax preparation software is so easy to use from home. It will ask you questions about your situation before getting started so it has the right forms for you to fill out. Further, the tax software is always up to date with the latest tax rules.
For those of you who want to have a H&R Block tax professional do your taxes remotely (because who wants to go to an office), they’ve come up with the H&R Block Tax Pro Go program. I tried them for one year because I had questions regarding a couple K-1 filings from my private investments. It was very helpful to talk to a tax professional who inputted the information for me when I was stuck.
The product provides remote tax preparation with just a few easy steps.
1. Tax Pro Match & Upfront Pricing: Answer a few questions about yourself, get matched with the best Tax Pro for your needs based on your answers, and see your actual price upfront, starting at less than $60 for one federal and one state return.
2. Tax Document Upload: You upload your digital tax documents securely. If you don’t have a document ready, you can save your progress and resume where you left off.
3. Talk With a Tax Pro: Your Tax Pro personally calls you once your forms are received. You can also securely message them at any time throughout the process.
4. Virtual Tax Preparation: You return is completed within 5 business days and sent to
you, along with an explanation of your credits and deductions for review and approval before you pay.
5. Pay & File: You approve your return and choose how to pay. Or use your refund and pay nothing out of pocket. Then H&R Block files your return on your behalf.
Five Things I Learned Doing My Own Taxes
1) Make sure you input your cost base for all trades. A decade ago I had a $250,000+ erroneous tax bill because I forgot to input around $1,000,000 in cost base for various trades. My real profit was less than $150,000, but the IRS thought I had $1,000,000 in profits. Never again will I make this mistake!
2) Private investments will often require you to file an extension. Whether you invest in private equity, venture debt, or various alternative investments, there’s a good chance you’ll have to file an extension because their tax forms seldom ever arrive by the April 15-17 deadline to do your taxes. You’ll have to do an initial filing and pay any estimated taxes owed, file an extension, and then revisit your taxes before the October 10 deadline.
3) The IRS is not as scary as they seem. When I had my missing cost base debacle, I called the IRS to get some help. They were very empathetic and helpful in explaining to me what I should do next. I filed everything appropriately and didn’t pay a penalty. I also double counted my home mortgage interest deduction once and simply paid the penalty of the overage. The movies make the IRS out to be scary monsters. But in reality, I’ve found them to be caring folks who realize errors do happen.
4) You learn how to optimize your taxes. Nobody cares more about your money than you. When you do your own taxes you are able to input pro-forma figures to see what your tax liability will look like if you take that job, sign up a new freelance client, relocate to a different state, or buy that 6,000 pound SUV for your business. Inputting various income and expense figures helps you figure out how you want to best earn and spend your money.
5) You learn how to maximize your life. When you do your own taxes, you realize how inefficient it is to earn W2 income or only earn W2 income. You also see how unrewarding it is to make a high income due to our progressive tax structure. As a result, you are less inclined to do uninspiring work just because of they pay. You’ll strive to earn passive income that is often taxed at lower rates, figure out an ideal income where happiness no longer increases, and care less about chasing the almighty buck. Once you become highly involved with your taxes, you take steps to live more freely.
Understand Your Taxes At The Very Least
You don’t need to do your own taxes, but at the very least, you should understand how your income and investments are taxed, and what you can legally do to minimize your tax liability. Taxes will likely be your largest ongoing expense.
What I suggest everybody do is try to do your own taxes once with the help of tax software and a CPA to answer all your questions. If the time you spent is beneficial, then do your taxes yourself with online software, especially if your taxes are relatively simple. If your taxes are complicated, then go the hybrid route or hire a CPA whom you can guide.
You can visit https://hrblock.com/taxprogo to start your return. I’ll be starting my return the first week of April and ultimately file an extension due to three private investment K-1s that will arrive past the deadline.
Readers, what are some lessons you’ve learned from filing your own taxes? With tax software so easy to use and tax documents all downloadable online, what are some of the reasons why some people still pay someone to do their taxes?
The post Five Lessons From Doing My Taxes For Over 10 Years appeared first on Financial Samurai.