How can I become good at understanding Taxes?

[Dsurf]

I have started to make more money which is a good thing since I wasn't doing so well for a bit. How can I become better at understanding taxes. I had to pay a $12k Self employment tax as was able to write off 1/2 of that, but as I get more into the rabbit hole of investing, I am understanding that if you can understand taxes first, and then this can give you a better idea of investments.

Any tips?

[MDM]

Different people learn in different ways.  For us, translating the federal tax forms into our own spreadsheets ensured that we understood how all the inputs led to the outputs.

Doing the spreadsheets is neither sufficient nor necessary to "understand taxes," but it has worked well for us.  E.g., see http://forum.mrmoneymustache.com/ask-a-mustachian/turbo-tax-vs-cpa/msg539186/#msg539186

[Retired To Win]

Actually, a good way is to go through a 1040 tax return form, line by line and then follow each line down the rabbit hole so you can see where the tax breaks are hidden in plain sight.

[Jack]

Read the instructions: http://www.irs.gov/pub/irs-pdf/i1040gi.pdf

And then if they refer to some other form or publication you think you need to know about (e.g. Schedules A-E), go download and read that too.

Then just continue until you're an expert.

Implementing them on a spreadsheet is a good idea too.

[LennStar]

Write the tax laws yourself, like some of the "industries".

You never asked about an easy way... ;)

[LiveLean]

Sounds like you're at least semi-self employed. That's one good way to learn since you're obviously inspired to do so. (And no doubt a little pissed off. "Hey, I'm not relying on an employer. I did this on my own and I've got to pay WHAT in taxes?")

+1 on researching all the forms. You'll then add to your knowledge each year. Keep up to date on taxes that come and go and depend on eligibility and where you live (deducting sales taxes, child tax credit, etc.) I always look for those January stories on "Ten Tax Changes You Should Know." Most of them are pretty basic, but inevitably there's one new wrinkle that saves me $500 somewhere.

I'm self-employed, own a small business, rental property, etc. So there are a lot of moving parts. But I'm glad I understand them because nobody is going to look out for your money at tax time better than you will. I'm always amazed at friends who work for an employer and have nothing more than a mortgage and a 401K and actually hire someone to do their taxes that probably should take 10 minutes.

[2lazy2retire]

get turbo tax and play around with entering different types of income - PAYE, CG's, dividends etc, then try some claw backs - mortgage interest, property tax, pension contributions etc- you'll soon start to see the impact on your bottom line. If after that you want to go down rabbit holes - good luck.

[Krnten]

The IRS has a program called VITA in which volunteers prep taxes for low income people.  I think the VITA training publication is a good place to start.  I forget the publication number but you can google it.   Also seconding others who say do your taxes by hand, line by line, for a few years.  You'll figure out pretty soon what the "tricks" (such as they are) are.

[Dsurf]

Thank you all. Im going to have to go line by line and make a spreadsheet. That sounds like a good idea and crazy that I didnt think of this before. Well, I guess that was the reason I paid someone before and now I dont.