Ignorance is bliss.
When you don’t know your boss is getting a huge bonus for saving the firm money by screwing your bonus, you’re happy. When you don’t know the reason why you didn’t get into the fellowship program is because the managing director is a woman who hates men with different political ideals, you’re happy. When you have no clue your boyfriend is hooking up with your best friend, you’re happy to carry on!
I’m generally a very happy go lucky type of guy. My facial expression seems to have “smile” as a a default setting. But there is one time a year where I get angry and randomly shout obscenities while no one is looking. The one time of year is during tax season.
As a proud financial masochist, I decided to redo my taxes a second time online just to make sure I didn’t make any errors. I’ve got a five figure tax bill for the first time in my life thanks to AMT, some one off incomes, and retroactive tax law changes in the state of California which I may write about more in the future.
Lo and behold I found a five figure error where I inadvertently inputted my property tax bill instead of my mortgage interest for one of my rental properties. My error makes me wonder what else I’ve done wrong. Despite my mistake, I’m a big proponent of everyone doing their own taxes. This post will highlight four reasons why, as well as five reasons why you’re silly.
THE MAIN REASONS TO DO YOUR OWN TAXES
1) Flexibility. Doing your own taxes gives you the flexibility of going at your own pace. Although it takes me on average 2.5 hours to do all my taxes in one sitting, I like to draw out the process over a one month time period because tax documents are always late and I expect last minute tax law changes. Not needing to meet with an accountant is a nice benefit. So is only paying $50-75 for tax software vs. $500-$1,000 for a professional
2) Optimization. The greatest benefit about doing your own taxes with online software is that you can play with the numbers to see where you can optimize your tax liabilities for next year. For example, I’ve made steps to eradicate expensive W2 income and increase dividend and passive income sources to minimize tax liability.
3) Cheat. It’s hard to cheat on your taxes if you get someone to do your taxes because they have their reputation on the line when submitting your returns. You can find an aggressive accountant, however, who knows your own risk tolerance better than you? Just be prepared to get the smackdown if you live too dangerously. However, as you’ll see below, if you cheat on your taxes you could win one of the most powerful jobs in the land!
4) Knowledge. If you love to learn, you’ll love doing your own taxes. After doing my own taxes for close to ten years, I’ve got a solid understanding about maximum mortgage interest tax deductions, income phaseouts, expense strategies for small businesses, and average donation amounts per income that won’t draw red flags.
To make remembering the benefits easier, just remember the acronym FOCK. If you can FOCK to reduce your tax liability, that’s what it’s all about. Tim Geitner FOCKed the government out of $32,000 with TurbTax by claiming ignorance. He eventually got caught and still was appointed the US Treasury Secretary!
Nearly 312,000 federal workers and retirees are FOCKing the government by owing more than $3.5 billion in back taxes as of Sept. 30, 2011, according to the IRS. The year before, about 279,000 workers and retirees owed $3.4 billion. The Department of Housing and Urban Development had the highest delinquency rate, at 4.4 percent. Such incest, FOKing each other.
Given how rampant delinquency is in our own government, it behooves everyone to do their own taxes right? Wrong. Let me share with you the reasons why you don’t want to do your own taxes.
THE MAIN REASONS NOT TO DO YOUR OWN TAXES
1) You cherish happiness. The number one reason why you do not want to do your own taxes is because you enjoy being happy. You will get so pissed off at doing your own taxes, you might end up seriously hurting the economy by becoming a traitor. You learn about all the infuriating tax policies which discriminate among different types of people. You will learn about why you can’t deduce your student loan interest or receive a child tax credit. You will witness retroactive taxes that rape you for thousands of dollars because a certain set of voters who don’t make as much as you voted to raise your taxes for their benefit. You will start despising the government for their chicanery. You will feel helpless because if you don’t give the government your money, you will pay fines or go to jail. Doing your taxes makes you aware of how much of slave we all are to the government.
2) You’re going to make mistakes. With the tax code tens of thousands of pages long, you will undoubtedly make a mistake or three. When you make a mistake large enough, the IRS will hunt you down. Even though every experience I’ve had with the IRS has been pleasant, it’s still a disconcerting feeling getting an IRS inquiry letter in the mail. They love to fish for more income in a heads they win, tails you lose situation.
3) You want a long lasting career. I planned on working for 18 years until I was 40, but decided to pull the rip chord after 13 years partially because I was so sick of paying way more than my fair share. I knew I would never be able to defeat the government’s discriminatory ways so I decide to join the movement by going John Galt. My blind quest to pay less than $100,000 a year in income taxes has short-circuited my career. If I worked just five more years, I would have that much more money. But then again, it’s not all about the money. It’s about happiness.
4) You love your country. If you become angry, lose your happiness, and ruin your career, you become less of a patriot. When you become unpatriotic you start protesting everything. Once you start protesting everything, it’s very possible you end up denouncing your citizenship because you realize resistance is futile. You leaving means one less taxpaying citizen and one less person to help replace our aging population. Once our demographics go, so too does the wealth of our nation.
5) You don’t want to be alone. Nobody wants to be with an unhappy, angry, jobless, deserter. As a result, you will likely end up spending many years alone. I’m not sure if anything is much worse than loneliness. This is why prisons punish nonconformist inmates through solitary confinement. I’d much rather spend my days with someone I love and be poor than be rich and all alone.
FOCK OR BE FOCKED
There is no way out when it comes to paying taxes. The best thing you can do for your finances is weigh the pros and cons to decide which way makes you the least unhappy. The folks who tell you they are happy to pay taxes don’t pay much at all. Don’t listen to them. You are a fighter who plans to build great wealth through knowledge. Just be careful what you wish for.
Recommendation: I’ve been using H&R Block’s Premium Tax Software to do my own taxes for the past 11 years. It’s inexpensive and very easy to use for novice to advanced tax filers. The software always updates with the latest tax rules so you’re never behind. They also have audit protection service as well.
Tax Savings Recommendation
Start A Business: A business is one of the best ways to shield your income from more taxes. You can either incorporate as an LLC, S-Corp, or simply be a Sole Proprietor (no incorporating necessary, just be a consultant and file a schedule C). Every business person can start a Self-Employed 401k where you can contribute up to $54,000 ($18,000 from you and ~20% of operating profits). All your business-related expenses are tax deductible as well. Simply launch your own website like this one in under 30 minutes to legitimize your business. Here’s my step-by-step guide to starting your own website.
Updated for 2017 and beyond. Income taxes are set to come down under President Trump. As a result, those who contributed to their Roth IRA or Roth 401k and planned on retiring in 2017 – 2021 had wrong tax expectations.