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.
Want to Hop on the Amazon Train?
If your garage is anything like mine, it’s filled with a mountain of boxes from Amazon.
The online giant has done more to transform the retail business than anything else in the last 100 years. The company is expected to surpass $250 billion in worldwide sales in 2019, and $300 billion in 2020. That’ll put it close to Walmart, the world’s largest retailer.
Not bad for a company that was little more than a few employees and a dream 25 years ago.
Most analysts agree Amazon still has plenty of growth potential ahead of it, too. Online sales are still only about 10% of total retail sales. The company’s web services division hosts many of the world’s top websites. It has some 100 million Prime members, customers that pay $119 annually for faster shipping, a streaming video service and other perks.
That’s not all. Amazon owns Whole Foods, one of North America’s largest grocers. It dominates the e-book market through its Kindle service. It bought Zappos.com, the world’s largest apparel and footwear website.
The company also owns dozens of smaller assets that are too numerous to mention. Needless to say the company is a colossus, and it’s easy to understand why regular investors might want to own a piece of it.
Let’s take a closer look at how you can add Amazon stock to your portfolio.
Before You Begin
Like with any stock, there’s the risk that Amazon shares could go down over time. Although Amazon’s stock has done superbly well over the years, there’s no guarantee shares keep going up. In fact, Amazon shares have fallen by more than 50% on at least two occasions, and when the overall stock market falls, Amazon shares often fall by a greater amount.
If this risk of loss scares the daylights out of you, it’s best to stick with safer investments.
The first step toward buying Amazon stock is opening up an online brokerage account.
Setting up the Process
There are only a certain number of Amazon shares outstanding. Every time somebody buys one, they’re simply purchasing a share that’s already in existence. A broker’s job is to match up buyers and sellers, helping the two facilitate a transaction.
Before technology took over, this was done either face-to-face or over the phone. Up until the late-1990s, you needed to physically go see your broker, tell them your order, and they’d execute it. Commissions of 2-3% of the value of the transaction were common.
It’s easy to see why this was disrupted. It made zero sense.
The same transaction is done online today, and for a fraction of the cost. The only difference is investors got advice along with their trades back in the day, while everything is self-directed now. You go to your online broker and tell it what you want to do, rather than the broker telling you what they think should be done.
The first step to buying and selling individual stocks is acquiring a brokerage account. This can be as easy as a few steps if you bank with one of the big banks. They all have brokerage divisions, and opening an account isn’t much harder than telling the bank part to share your information with the brokerage part. You’ll be in business in a day or two.
It’s a little more complex if you need to open a new account from scratch. The brokerage will need a snapshot of your total financial life, doing everything from verifying your identity to asking about your net worth. It seems like an invasion of privacy, but the brokerage is required to ask these questions. Blame the feds, not the broker.
It doesn’t take much cash to get started, either. Many brokerages will allow you to open an account without any money in it. You’ll need to transfer initial capital over to the account to start buying stocks, but that’s as simple as paying a bill online.
Now It’s Time to Buy Amazon Stock
Your brokerage account is all set up and funded. Now it’s time to actually buy the stock.
The process is quite simple. Remember, trading stocks is one of the major ways your brokerage will make money. So they have a vested interest in making the process go as smoothly as possible.
You’ll either go to your brokerage’s website or app. The process is the same on either platform. You’ll search for the “trading” or “trade stocks” button. Click that and it’ll take you to the trading screen, which has a few different options.
Start out with putting the stock’s symbol in. We’re buying Amazon so we’ll put in its symbol, AMZN.
Next you’ll need to tell the software how many shares you want to buy. It won’t be very many, unless you’re a real baller. Amazon’s stock price is nearly $2,000. Don’t sweat it if you can only afford a share or two. The underlying value of each share is what counts, not the sticker price.
Finally, it’s time to tell your broker if you want a limit or market order. A market order buys shares at the going price, while a limit order insists on a certain price. Lots of investors are constantly buying and selling Amazon shares, so you’ll be fine going with a market order. Limit orders are generally reserved for stocks without a lot of volume.
Once you confirm all that, your brokerage will ensure you’re okay with the entire order. Note this is where the total commission is disclosed as well. Take a minute to make sure you didn’t make any typos and then confirm.
Congratulations. You’re the proud owner of Amazon stock.
The Bottom Line
I understand the desire to own Amazon shares. The company has killed it for 25 years now and looks poised to further secure its dominance going forward. Who wouldn’t want to own a small piece of a company like that?
Online brokerages have made it simple to buy and sell stocks, too. Millions of Americans are taking control of their retirement savings through self-directed trading, with many having great success at it.
Just remember one thing: Amazon stock is a risky investment. It could very well go down over the short-term. The important thing is to ride out these downturns. Don’t get excited if the stock doesn’t immediately go up. Long-term patience will win the investing game.