Friday, September 7, 2012

Doing your own tax returns

Hiring guns or not to file your tax return really depends on how much you have and how much time you can afford.

I must be in the majority who file the tax returns himself. I can tell you the advantages of doing it yourself from my own experience.

* With Turbo Tax and the ease of loading all my stock transactions from my broker, it is quite easy to do tax returns. I do not pay the accountant to do the data entry job that is quite free, error-free and automatic.

* By doing it yourself, you understand your tax conditions, tax laws... to make the best advantage of it. I did / do the following:

- Moved all partnership stocks to retirement accounts. I have a life too.

- Converted portion of 401K to Roth.

- Figured out that I have to withdraw from retirement accounts big and soon. Otherwise, the tax law requires me to withdraw at a large amount at age of 70 1/2 that could raise me to a very high taxable bracket.

- Take advantage of the low capital gain tax rate in last few years. At one year, I paid almost 0 for capital gain tax when I sold most of my long term gainers (you can buy them back).

- Notice the huge dividend tax that is coming and act accordingly.

* I do realize professional services are important esp. if your asset is above a certain level and/or your tax situation is complicated.

* Some highly appreciated stocks are good for charities and/or pass them to my heirs.

I did not use estate service before as the deductions are very generous. However, next year it may not. I spent about $4,000 for setting up wills and trusts. We do not want to be penny wise and pound stupid.

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