Death or Taxes – Not Sure What I Fear Most

The best advice I can give to anyone who wants to lessen their tax burden is to “Do Your Own Taxes.” I have no wish to take business away from Jackson Hewitt, H & R Block, Liberty or your accountant, but most of us, given the tax preparation software available, can easily do our own taxes.

By doing your own taxes you will better understand the tax regulations, and how to pay as little as the law allows.  Remember the difference between tax avoidance and tax evasion.  Tax avoidance is legal and will give you lower taxes.  Tax evasion is illegal and will give you up to ten years.

The simplest way to do your own taxes is to buy tax preparation software.  I have used both Turbo Tax and H&R Block software with good results.  The greatest advantage, besides being much cheaper than paying someone else, is the insight you gain from walking through the many questions asked that you probably never thought of.  For instance, if you’ve given something to a charity, the software will suggest the amount of the deduction.  Until I used this feature, I deducted much less than the amounts suggested.

And who knows your situation better than you?  A tax preparer will input what is provided.  Doing your taxes at home, you can go look for something that you had forgotten earlier.  You can do your taxes at your own pace, over days or even weeks, and when you are finished, the software will help you file electronically and will help you track the progress of your return so that you know when it was received and accepted. If you are due a refund, you can track that also.

But tax planning is a year round task.  Track every expense that may be deductible.  Are you putting money aside in a tax deferred account?  Do you support someone who may not live with you but is dependent on you?  Tax credits come and go – maybe you qualify for a tax credit this year. There are a number of credits associated with children and saving energy.  Check them all out.

There is nothing patriotic about paying more taxes than your obligation. Nor is there anything shady about taking advantage of credits and deductions.  So called “loopholes” were put there by your government for a reason whether we agree with them or not.  Use every “loophole” you can.  Increase your income by avoiding as much tax as possible – just do it legally, avoid not evade.

One last comment.  Many planners and advisers, I used to be one of them, will advise you to avoid a large refund by adjusting your withholding as close as possible to what your expected taxes will be at the end of the year.  Our argument was that you are giving the government an “interest-free loan.”  I have changed my position.  I believe it is better to withhold too much and get a refund than to risk owing taxes at the end of the year.  Besides, for many people a tax refund represents a way of forced savings.  I can live with giving the government an “interest-free loan” if it allows me to put a lump sum towards my retirement that I otherwise might have just spent on lunch.