It's Not Fun, but It Has to be Done Benjamin Franklin wrote a 1789 letter that states, “But in this world nothing can be said to be certain, except death and taxes.” Even at the United States’ early beginnings, federal taxes were a necessary evil to fund various public projects and administrative costs. Today, federal taxes serve much of the same purpose. While virtually no one likes to prepare and file their taxes, it is a necessity if you want to avoid fines and further hassle. It is no secret that preparing and filing your taxes is notoriously complicated. Many people lament that it should not be so difficult to pay the government. However, some of the complications allow people to save money if they discover specific tax benefits. Knowing how to file your own taxes may be a good option if your tax situation is relatively straightforward, or if you are willing to learn the process. Why Do You Need to File Your Taxes Every Year? The short answer is that federal law requires that most individuals file taxes annually. Income taxes are assessed every year based on your income earned during that period. You then pay a percentage of that income to the government, less any deductions, adjustments, or credits that you qualify to receive. If you do not file (and pay) your taxes, then you may be assessed penalties and interest. The Internal Revenue Service (IRS) can even go as far as garnishing your wages and repossessing your property if you do not file and pay as required. The Benefits of Filing Your Own Taxes If you are one of the 43% of Americans that are doing your own taxes, you are certainly not alone. Roughly 53 million people prepared and filed their own taxes in 2018. There are many benefits to filing your own taxes, including: Saving money: Hiring a tax professional is expensive, and many people can prepare and file their returns on their own, completely free of charge. Control: Some people like knowing the exact information that is included in their return and being able to control the data, and for some, knowing precisely how the numbers work out, is comforting. Gain helpful information: When you prepare your taxes, you can see what items saved you money this year or which issues you should address so you can save money next year. While filing your own taxes is complicated, it can be beneficial under the right circumstances. There are several programs online that walk you through the process to help ensure you are taking advantage of all of your available deductions and credits. The Drawbacks of Filing Your Own Taxes In addition to the benefits, there are also some disadvantages to filing your own taxes. These include: Time and effort: Preparing and filing your taxes takes time and work You have to sift through financial information and deal with concepts that you may not understand well. The process can be frustrating and take a considerable amount of time. Error risk: If you do not completely understand how your taxes work, you run the risk of making a mistake because of misconceptions. If that happens, it could lead to underpayment and audits down the road. Questions: Even if you use a tax preparation software, you may still have questions that will remain unanswered unless you do significant research or reach out to a tax professional. For some people, the risk of having a substantial error that triggers the IRS’s attention is enough to scare them away from preparing their own taxes. Preparing for Filing Your Taxes When you begin work on your taxes, you should have information gathered throughout the year. Some of the most common items that you will need include: Social Security numbers for you, your spouse, and any dependents Information about wages, such as W2s or 1099s Investment income information Documents that represent any other source of income Information regarding adjustments to income, such as student loan interest paid, IRA contributions, and health savings account contributions, just to name a few Information regarding potential credits, including, for example, child care expenses, education expenses, or retirement savings contributions Data about any tax payments that you may have made throughout the year Keeping good records will help make tax preparation easier at the beginning of the year. [youmaylike] The Basics About What You Can Claim When Filing You must pay income taxes on all your income earned throughout the year. However, that income is reduced by a few things. The further you can reduce your taxable income, the less you tax you will pay. There are three general categories of tax reduction methods: Standard or Itemized Deductions Everyone can claim either the standard or itemized deductions. Standard deductions are a set amount that is based on your filing status. Itemized deductions are based on actual expenses that you incurred throughout the year. You can choose to use the higher deduction. The higher the deduction, the less tax you will have to pay on your income because your income decreases on paper. Itemized deductions include things like medical expenses, state and local tax payments, and home mortgage interest deductions. Itemized deductions will only decrease your income by a certain percentage, or up to a specific point. Adjustments Some adjustments to your income may also be available. These include things like paying student loan interest or alimony. Adjustments are more valuable compared to deductions because they decrease your income dollar for dollar. Credits A credit decreases your taxable income as well. Some credits are refundable while others are not. For example, you get a child tax credit simply for having children that qualify for that credit, but that credit will not be paid out to you if you do not have any tax obligations. On the other hand, the Earned Income Credit, which is available for low-income filers, will be refunded to you even if you do not owe any taxes. There are a wide variety of deductions and credits available. Take a look at the federal forms and related schedules to determine whether you might qualify for any of these. How to File Your Own Taxes If You Live Overseas If you earned income in the United States as a U.S. citizen or resident alien, you likely need to pay taxes on that income. This is true even if you live overseas. You can still choose to e-file or mail your tax return to the IRS once you have it prepared, just as if you physically lived in the United States. In some cases, you will be taxed on the income that you earned throughout the world. However, you may be able to deduct a portion or all of the revenue that was not made in the United States in some circumstances. Filing Online The IRS offers an online filing option that is free for individuals that have an adjusted gross income below a specific threshold. Generally, your income must be below $66,000 to qualify for this service. You can also file online by using a commercial tax preparation software. Examples of this type of software include: H&R Block TurboTax TaxCut TaxSlayer There are many programs available that will file your taxes for you, often for a fee. Knowing how to file your own taxes can be a great way to save money, but it can be tricky as well. If you want to file your taxes yourself, be sure to read the form instructions thoroughly and get familiar with various tax saving opportunities before you begin preparing your return.
ESG investing, it may be an investing buzzword that you’ve heard thrown around in your circle. ESG investing is a popular term these days, but it wasn’t always that way. There was a time when companies valued shareholder profits above everything else, with little regard for the environment and social issues. Now, companies are recognizing that ESG investing doesn’t just make for good PR, it makes financial sense too.
In this article we’ll look at the basics of what ESG means, what ESG investing is, why it’s so popular right now and how you can invest in ESG funds. After reading this article, you’ll have a better idea how to go out and choose your own ESG fund.
What Does ESG Mean?
ESG is an acronym that stands for Environmental, Social and Governance. These company objectives play an important role in a specific type of investing called sustainable investing and socially responsible investing. Sustainable investing values companies who do good things, everything from following local labor laws to reducing their carbon footprint.
Investors who follow this investment strategy look at companies using these three objectives when evaluating a stock. If you look at stocks from an ESG perspective, along with using more traditional stock analysis, it’s known as ESG integration.
Anyone can become an ESG investor. All you need to do is learn the framework and apply it to investing decisions.
Don’t let the objectives fool you. ESG investments still aim to earn positive returns. But that’s not all these investments aim to do. They also aim to have a long-term positive impact on society and the environment, all while striving to accomplish the mission the business has set out for itself.
What Is ESG Investing?
ESG investing is when you only invest money in a way that promotes sustainability. An ESG investor often uses the factors to reward companies that meet its objectives and influence others who could be doing a better job of meeting them. For a lot of investors, when you understand the ESG factors of a company, it helps you understand its corporate purpose, strategy and management, among other things.
Why Is ESG Investing so Popular Right Now?
ESG investing can be traced back all the way to 2005 when it was first used as investment jargon. Since then, all the major stock exchanges in the world have introduced their own set of sustainability guidelines. For example, the New York Stock Exchange introduced the Principles for Responsible Investment (PRI).
Since then, more and more companies have recognized that sustainability is something important for them to consider (since their investors and customers value it). Today, there are over 1,600 companies with $70 trillion in assets that follow PRI. And the numbers speak for themselves. Simply put, ESG investing has gone mainstream and is no longer just a niche interest.
That being said, some institutional investors have resisted ESG investing. These institutional investors argue that a company’s first and foremost responsibility is to its shareholders, in spite of the environmental or social effect. But it’s increasingly becoming evident that ESG related issues can affect a company’s bottom line, both for the good and the bad.
In North America as well as Europe, ESG investing is not only seen as the right thing to do, but a smart move for a company financially.
ESG investing is in contrast to shareholder value theory, which was popularized in 1970 by Milton Friedman. Friedman said that a company’s only social responsibility was to maximize its profits for its shareholders, with environmental, social and governance considerations not as important.
Since then, modern investors have realized that short-term thinking in order to temporarily boost company returns doesn’t make sense, especially when it will have long-term negative consequences. It’s simply too high a price for society to pay.
ESG investors recognize that a company’s stakeholders aren’t just its employees, customers and suppliers. It includes a whole host of other people, including society in general.
Despite shareholder value theory aiming to maximize the returns of shareholders, investors are realizing that by treating stakeholders in a less than stellar way, it presents financial risks not only for shareholders, but for the company itself.
This helps explain why ESG investing has been growing in popularity, and it helps explain the rising value of ESG ETFs. ESG ETFs combine the best of both worlds in what investors are looking for: low fees and sustainable investing.
How You Can Invest in ESG Funds
The simplest way to invest in an ESG fund is by buying an ESG fund. However, this is often easier said than done.
When choosing between two funds that claim they abide by ESG investing principles, you can end up with a completely different investment portfolio. That’s why you’ll want to drill down and take a closer look at a fund.
You can figure out if a fund is an ESG fund by looking at its ESG rating. An ESG rating provides an objective overview of a company’s environmental, social and governance responsibility, but the rating has its shortcomings.
For example, a company could have a great environmental record, but a not so great record in terms of gender representation. You need to dig deeper for yourself.
Let’s say you’re concerned about climate change. It may surprise you to learn that many ESG indexes don’t have a problem listing ESG funds that are involved in fossil fuels or the oil and gas industry.
If you truly want to see where a fund’s priorities lie, you can look at its individual holdings, usually found on its website. This should give you an accurate view over whether this is an ESG fund you want to invest in.