Whether you are just beginning your career or already earning a large salary, there are many benefits to preparing your own taxes. I now work with a trusted accountant, but doing taxes myself for years gave me a huge leg up in the retirement savings game. Here are some of the benefits of filing your own taxes:1. Understand the impact of taxes on investments.
Bonds, real estate investment trusts, stocks, dividends and capital gains are all taxed differently. It’s not necessary to file your own taxes to learn the differences, but seeing the numbers for my own circumstances definitely prompted me to dig deeper into the details. By understanding the differences in how various investments are taxed, you can make more efficient asset allocation decisions. For example, putting particular investments in a taxable or non-taxable account can help you save on taxes. Tax knowledge can also aid in investment evaluation, because it’s ultimately after-tax returns that are important.
2. Reinforce the power of tax-advantaged accounts.
It’s hard to grasp the tax impact of saving in a 401(k) when you write a few percentages on a sheet of paper, but the numbers all make sense when you file your own taxes. And every time you file the 1099-DIVs on your taxable accounts, you will feel grateful that you don’t need to pay taxes on all the investments in your tax-advantaged accounts this year.
Source: U.S. News & World Report | David Ning