This post is part of the TaxAct #DIYtaxes blog tour which empowers you to take ownership of your finances by doing your own taxes. TaxAct provides the tools and guidance to help you confidently file your taxes easy and fast.?Do your own taxes today at?TaxAct.com.?You got this.?
There was a time I did my own taxes. This was a time before investments, businesses, and various other complications entered my life. I could probably still do my own taxes, but handing things off to my accountant takes a lot less of my time. Plus, the mess that was my post-divorce tax situation?was made much more bearable with the help of a professional.
Even though I don't do my own taxes now, I did them for years — and it was a great learning experience. I learned valuable money lessons by doing my own taxes.
Plan Ahead
The most important money lesson I learned by doing my own taxes was to plan ahead. It seems simple, but it's harder than it seems. I was shocked by my first tax bill as a self-employed person. That SE tax is a killer.
Doing my own taxes allowed me to get a real feel for exactly how much I owed, and understand the importance of setting aside money each month to meet my tax obligations. Planning ahead works in every other area of your finances as well. After preparing my taxes on my own for the first time, I realized that my entire financial flow needed an overhaul.
I began planning my finances around my tax obligations, as well as making other plans with my finances. Today, my personal financial planning revolves around making sure that taxes and bills are covered, and that I am investing for my future (retirement, HSA, etc.) and planning for spending priorities like my travel fund.
And it all started the first year I did my own taxes.
You Should Know What's Going On
Doing my own taxes allowed me to really get into the nitty-gritty of what happens with my money. Too often, we don't get our hands dirty with our money. We don't think about what's going on, and we spend without thinking about the “why” behind what we do.
When I started digging into deductions, credits, regulations, and schedules, I realized that there is a lot more going on. I became more conscious of how my decisions impacted my taxes. Once I realized how my taxes worked, and how paying attention can mean savings of hundreds of dollars a year, I began applying the same philosophy to other areas of my financial life.
I started paying attention to the way I spend money, considering the reasons I spent. Once I became aware of what was going on with my money, I made changes to my approach. As a result, I'm much happier with my financial situation and I'm able to better maximize my monetary resources.
Long-Term Investment Income > Earned Income
There's a reason that Mitt Romney's effective tax rate is less than mine. The bulk of his income is from long-term capital gains and dividends. Most of my income is derived from the sweat of my brow. One thing I noticed the first time I reported dividend income while doing my own taxes was that income is taxed at a more favorable rate than the money I make as a business owner.
I've got a way to go, but I'm taking steps now to shield some of my future income. Part of that is about building my dividend portfolio and focusing on long-term investments. I'm also making it a point to contribute to my HSA and a Roth IRA.
Doing my own taxes allowed me to pay closer attention to my money, and become more involved. While I don't prepare my own taxes today, the lessons I learned from preparing them in the past still influence me.
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