Choosing to do one's own taxes is a tough task. Some people despise math so much and don't feel confident enough in following the instructions or finding hidden money so they go to an accountant. Other people are too frugal to see the point in paying someone to do something they think they can already do and would rather risk the 1040X forms for mistakes. Or, get a refund back and confirm that they did indeed know how to correctly file for federal and state taxes.
Profits, losses, 401(k), IRA, child support, alimony, unemployment: It can all make a person's head spin. Got a big tax refund after the d(r)eadline? That means a worker has been paying high taxes all year. Got a low tax refund? At least you don't owe but this may have killed your dreams of paying a debt off or splurging.
In author and certified public accountant (CPA) Anthony C. Campidonica's book "Outsmarting the System: Lower Your Taxes, Control Your Future, and Reach Financial Freedom," he has three suggestions to get ahead of the game before April 15. According to Campidonica, the three groups of people (outside of celebrities and professional athletes) who reach financial freedom are investors, landlords and small business owners.
"Outsmarting the System: Lower Your Taxes, Control Your Future, and Reach Financial Freedom" will be a more comfortable read for those who understand basic tax forms, but as long as you're decent at math, the writing will be pretty easy to comprehend.
The book is broken up into eight chapters (125 total pages): "Purpose," "Problem," "Process," "Solution," "Challenges," "Venture," "Tax Reporting" and "What the Rich Know That You Don't" with a summarizing worksheet chapter "Next Steps" at the end.
Campidonica's best analysis in Chapter 2 "Penalty" is why both employees and self-employed workers should pay more attention to the differences between personal brokerage accounts and 401(k). For anyone under age 59 1/2 who has experienced that 25 percent penalty for early withdrawal, this chapter could make you recalculate and rethink how you save. Line 16a on your federal tax form 1040 may look a little different, too, when the adjustable gross income is summed up.
For people who have no desire to enter into the world of entrepreneurship, being an investor is discussed in Chapter 5 "Challenges." High-risk savings (stocks, bonds and exchange traded funds [ETFs]), and low-risk savings (certificate of deposits [CDs] and savings accounts) are popular options, and Campidonica helps explain why both high- and low-risk investments may be successful or flop.
Campidonica writes in a conversational manner, and there is a bit of fluff about topics like why college isn't always necessary and how the rich get richer. Sometimes other advice can be redundant. For example, Chapter 7's "Tax Reporting" explained how the IRS catches people in their income schemes from verifying credit card statements, mortgage statements, student loan documentation and even monitoring online transfers and check deposits in a bank account. So repeating several times to readers to report all income wasn't necessary. The record-keeping tips were more than enough information to make Pinocchios consider shrinking their noses to avoid jail time. However, due to his 16+ years of financial consulting experience, it's easy to believe he may have run into people who still felt untouchable.
Chapter 7 was still one of the strongest chapters because it was a step-by-step summary about what the self-employed should keep tabs on, including how to deduct for partial entertainment and food, home office expenses, travel charges, depreciable assets (expenses that'll last over a year, such as a computer), gifts and cell phone usage. It focused more on how to profit rather than self-employment taxes, but if a sole proprietor knows how to do one, she'll be more fluid at doing the other.
Another strong section is Chapter 5's "Challenges," in which current landlords and potential real estate owners learn the ins and outs of how to profit from tenants and how that'll affect the amount of taxes they must pay. For people who don't quite understand how real estate owners profit, Chapter 5 gives the inside tips of what works, including how to pick a tenant.
There's good advice like this sprinkled throughout the book, in addition to math breakdowns to back up the financial explanations. Overall this is a good read that can be used as a day-to-day reference tool all year round.
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