13 Apr I submitted my taxes!
It’s a recurring problem. Every year in April I frantically file my taxes at the last moment. Life doesn’t have to be a struggle to file taxes, but I allow it to be. Call it delinquency. I blame all of the institutions that are obligated to send me tax forms to file. They never send it at the same time. It forces me to wait until I receive all of the paperwork before I can submit everything to Uncle Sam. My motivation to file my taxes waxes and wanes in an unpredictable frequency and amplitude. You really have to catch me at my high point in order to get everything completed.
I file my own taxes. Yes, most financial bloggers do. My taxes really aren’t that challenging, as the bulk of my income still comes from a W2. That means I don’t get to fill out fancy deductions to save money after spending more money. I started doing my own taxes during internship when I received real taxable income. I remember that since half of my internship spanned the same calendar year as my 4th year medical school, I essentially paid no taxes. I think I earned like $20k that year. The tax software was also free, but I probably paid some amount to file my state taxes online. I also learned to decrease my withholdings through my W4 that year too so I also came close to receiving no money back afterward. I felt like a badass.
Tax filing does become more complicated as we go through life. Kids. Mortgages. Tax lost harvesting. Second homes. Real estate deals. Multi-state income. Foreign transactions. Trusts. The redeeming aspect of complexity is the skillset is additive over time. It is actually beneficial to start learning about taxes when you’re making little money and have either negative of low net worth. You get through the filing process quickly and you learn. Tax software like TaxACT and TurboTax allows you to get through the process as painlessly as possible. Life isn’t as daunting as before the Internet age. By the time you get five bank accounts, three 401k custodians, a handful of brokerage custodians, and a few real estate properties, you will have had (probably) many years of practice. It might not be as challenging as jumping in headfirst into an eight-figure portfolio.
As with most other people who choose to file their own taxes, I hope to minimize my tax burden as much as possible. Jeremy from GoCurryCracker is a master at this. I think I paid more taxes when I earned $20k a year than he does now earning a near six-figure income! If you had the choice between earned income or passive income, passive income wins all the way in being more leniently taxed. For W2 employees, the only deductions you really get are mortgage interest, property tax, and business expense deductions. The business expense part is really a moot point unless you spend significant mounds of money on conferences and meals because these expenses have to exceed 2% of your income. Generally speaking, on a $400,000 W2 salary you get to deduct business expenses that exceed $8000. All meal costs are only deductible at 50% too. I know plenty of doctors who spend more than that in unreimbursed expenses, but that’s somewhat lavish. I’d say that one could spend roughly $8000 for 2 1/2 fancy meetings (yes, PoF, cringe). Some conference registration fees can easy run over $1000 plus additional mini-courses. Put that in an expensive resort area, and you’ve got hotel fees in the $300 range. I probably attend one of these meetings a year, but really cringe at how expensive meals can be when there is limited access to grocery foods.
This year it took several hours to sort out my receipts and enter the data into TurboTax. I probably could have shaved off at least one hour had I known my poorly organized folder of receipts did not exceed 2% of my taxable income. Lesson learned.
All in all, it wasn’t a bad year. I paid more tax than I would have liked, but that’s what you get if most of your income comes from your primary job and you’re still building wealth. For 2017, I plan to implement the following changes to streamline my taxes:
1) Keep a running spreadsheet of meeting expenses. Fill out the blanks soon after the conferences so that expenses are still fresh in my mind. This will make the year’s end easier.
2) Make sure I keep track of my donations, especially to Goodwill. Ask for receipts so that I can clearly prove that my clothing drop-off is real.
3) Consider switching tax filing software. TurboTax is great. It’s also the most expensive of the bunch. The amount that we truly save is probably negligible ($20-$30) total, but it might create a good review of what is available.
What other pointers have you learned while filing your own taxes?