Five Simple Rules for Keeping Your Taxes Straight
by Byrne Hobart
As complicated as taxes are, most of the problems people face with taxes don’t involve missing some detail of the tax code — though that does happen. Most tax problems start when a routine filing is complicated by lacking the right information, waiting too long to start working on taxes, or forgetting the tax considerations involved in their decisions. Here are a few simple rules to keep you on track:
- Always right it down — better yet, type it up: whenever your accountant tells you something, whenever you make a decision that might have tax consequences, and every time you make a major purchase or sale, make sure you’ve recorded it in a safe place. The best thing to do is keep your information structured, and the next best is to make it searchable, so keeping your information on a computer is a very good choice (even if you don’t use a standard accounting package, a simple text file with all of your business expenses recorded can be a lifesaver).
- Keep track of what’s next: An individual taxpayer has to deal with the tax authorities at least once a year. For a small business owner, that can be much more often — sales taxes, business income taxes, and payroll taxes all require more constant attention. It’s important to knwo what’s coming next, and what you’ll need for it. There are plenty of free calendars with automatic reminders (most email programs come with one, and many free email services like Yahoo, Gmail, and AOL offer them, too), so there’s no good reason to be blindsided by a due date you should have seen coming.
- Start earlier than you think you need to: It’s always tempting to procrastinate on taxes. They’re a long, boring project that will take hours to complete and have a fairly unpleasant outcome: the perfect recipe for procrastination. But it’s best to get it out of the way early. After all, worrying about your taxes every day for months is even more unpleasant than just sitting down and sorting them out in a few hours. My recommendation: as soon as you get the last document you’ll need, start doing your taxes.
- If you’re behind — catch up! If doing your taxes isn’t dreadful enough, the feeling of not having done them surely is. Every day that you fall further behind is another day of interest, fees, unfriendly IRS attention, and worrying. Whatever the reason for getting behind, there are solutions: if you don’t have the money to pay your liability right away, you can work out a payment plan; if you don’t have the data you need, you can start working on the forms you can complete while you wait for the rest of the information; and if you’re confused and overwhelmed, keep in mind that most tax specialists have a lot more free time than usual once the tax deadlines are past.
- Don’t forget taxes when making a big decision: when you buy a home, sell a stock you’ve owned for years, purchase a car you might use for business, pr have a meal with a client or colleague, remembering the tax consequences can help you avoid common pitfalls and even save money. The specifics are far too variable to recount, but since so many people are anxious not to think about taxes when they don’t have to, a little second-guessing can be healthy.
Will these save you from every tax disaster? Hardly. They’re just simple ground rules that will at least make sure that, if you run into tax trouble, you have a great excuse — and a good shot at fixing it.