Sometime after moving to NYC in 1998 to be an actor, I saw a gossip article about some celebrity, Matt Damon or someone, who had lost something like $100,000 to a shady financial/tax advisor. You know, where the guy pretended to invest the money and lose it, but really just stole it. Though I had little money to my name at the time, it really bugged me that things like that could happen, that the system was set up that the person who owned the money didn’t really know what was going on to the point that a criminal could steal vast amounts of his money without anyone realizing it until it was too late. Though my entire financial plan at this point had been to make sure to always keep an extra $500 in my checking account so I’d never accidentally get overdrawn, I decided then and there that I never wanted to end up like Matt Damon.*
Since I had no money yet to invest, the one financial area that I was involved in was my taxes. Being an actor with self-employment income coming from multiple sources, my taxes were relatively complicated. But having a stranger come in and evaluate my money, filling out forms I didn’t understand (and would barely explain to me), and then having to pay that guy for the privilege of feeling like an idiot, all the while praying that whatever he charged me would be less than my refund, just really grated on my soul. I felt I was doing my future self a disservice in letting someone else take care of things that were really my own responsibility. Instead of being passive and weak, I needed to take control and understand it for myself. That way, once I was rich and famous no one could ever steal my fortune away due to my own ignorance. (heh)
So I went down to H&R Block, and I signed up for a tax prep workshop. Somehow it felt thrillingly subversive doing something so unusual. Whenever I would mention to a friend what I was doing they just looked at me as if I had just told them I hated bacon or that I really enjoyed being stung by bees or that I thought clowns were heartwarmingly adorable. Why on earth would I want to do something like that voluntarily? But from my perspective, I didn’t understand why they didn’t.
After a few weeks of class I realized that rather than just educating the general public, the real intent of the class was more to train people who would then come work for them as entry-level tax preparers, but I was ok with that. I may even have had a fantasy or two about becoming a CPA, because that is just how I roll. When the class was over though, I chose instead to do a regional production of an operetta called “Rose Marie”, but that is another story.
Getting to dig through the tax code, even doing relatively simple calculations, taught me a heck of a lot. Not all of it was or would be applicable me, but it all helped me figure out how to do my own taxes with a good degree of confidence. I’m never shy to ask for help when I need it, but over the last 15 years I’ve only had to pay someone to do my taxes once. That was the year I worked as a travel nurse and didn’t trust myself, only to find the paid preparer came up with the exact same numbers as I had. Oh well. It was an expensive reminder that I can, at least, take care of myself when it comes to my taxes.
Many people continue to think I’m nuts when I admit to doing my own taxes, and probably think sitting through a multi-week tax prep course sounds akin to torture. Luckily for me, I’m not one of those people. Beyond the pride I feel about being self-sufficient and the comfort I have in truly understanding what taxes I’m paying, I love that I’m not paying some random guy $300 a year to do it for me. I probably paid a couple of hundred bucks for the initial class, but that has been paid back to me many times over in saved costs. It does take up my time, because rules change and I have to read a lot every year to make sure I know what I’m doing. Self-employment taxes? Yep. IRA conversions? Been there. But I admit I kind of like it. What can I say, I’m a nerd. I’m an awesome, frugal, nerd.
Though I was always pretty good with money, this was probably the first big, deliberate step on my path to financial independence. Being a starving artist at the time, it was still years before I made much progress, but this planted some seeds and gave me a baseline of education that helped keep us financially afloat even through some very lean years living in New York. Irresponsibility was not an option. Ignoring the problem was not an option. So this was the step I took.
I’ll even raise the stakes and say that when I look back on the choices I’ve made over the years, it is things like this that stand out as defining moments of my life. Not because I think doing taxes is a particularly important or even effective way to achieve happiness, but because I think the pursuit of knowledge is.
People love to say things like “life happens”. Heck, I say it. Because it does. But we are not powerless at the fickle winds of fate. We can make choices to empower ourselves to move the directions we want to go, to protect us from some of the things life might throw our way. And with each choice, each intentional move, we become a stronger, happier, and sexier force in the world.
Yeah, I said it. Nerds are sexy. The truth will set you free.
Now, I’m not saying I think everyone reading this should do their own taxes. After all, they have to be done correctly and on time, and many people are as afraid of the maths as I am of the clowns. But it is a great way to build your comprehension of how your money works and what you are really paying in taxes. For example, we all have heard politicians talking about tax rates, and how this person pays more than that person. But have you ever calculated your effective tax rate? In fact have you ever actually calculated how much you spend in a year on taxes? Or is tax time just a chance to get a big refund that you can use for a big splurge? (Hint: If you are consistently getting a big refund, then you are paying too much the rest of the year!)
Challenge: go back and calculate your effective tax rate for last year. (The total amount you paid in taxes divided by your total income for the year.) Are you surprised? And don’t you feel sexier for knowing?
* Hey there Matt Damon, if you are reading this, I hope you aren’t offended at my little literary flourish. I’m sure you are awesome and understand your finances like a true professional. It was probably some other celebrity altogether who didn’t and found themselves swindled. I’m just making a point, and intend no disrespect. And as I’m sure you would point out, I’d be willing to bet Jason Bourne could do his own taxes.