Published in the Westchester Guardian, June 2014
“Organizing is what you do before you do something, so that when you do it, it is not all mixed up.” A. A. Milne
With tax season adventures still fresh in our minds, it’s time to review the individual systems of record keeping to somehow make next year’s filing process a little easier. I will not talk about what color folders you should use for your receipts and expenses or how to sort your files, but I will give advice on what to do and what to avoid. My tips are generic for any system. Only you know what’s best. Each individual has their own unique styles and methods that will not be optimum for another tax payer, but you should always seek to improve on current methods. If you do your own returns or pay someone, I hope the following is useful.
“This is too difficult for a mathematician. It takes a philosopher.” “The hardest thing in the world to understand is the income taxes.” Albert Einstein
Every January starts the race against the clock where our biggest opponent is time because a lot of us keep repeating the same disorganized and time consuming methods year after year. A good filing system can save a lot of money, keep you from making easy mistakes, but most importantly it will save valuable time and aggravation. Good record keeping is an ally when you’re faced with audits and other tax issues. Take advice from a disorganized individual and former accountant, whose wife’s filing system is super neat, well managed and structured: it pays to listen to one’s spouse, again.
Accountants do not like to receive shoe boxes of papers. The more time he or she spends in digging out the information, the more it will cost you. And the longer it takes to do your return the longer you will have to wait for that refund. Remember also, you are competing against other tax filers who are also clambering for your accountant’s attention. (The longer you wait to file, the less individual attention you will receive. I knew one accountant who charged higher fees as the April deadline approached.) Every filer has specific issues and unique financial situations. Put yourself in the accountant’s position: when there are issues to be resolved, when there are creative tax laws to be explored and tax liability options to be dealt with, whom would you rather work with Felix Unger or Oscar Madison? Everyone, including accountants, dread tax season, so why make things difficult for the preparer and yourself. Some little bit of discipline now saves a lot of aggravation later. Read some of my tips below, ask your tax preparer for some advice, but before January 1st and after April 15th.
The best preparation for tomorrow is to do today’s work superbly well. William Osler.
Some don’ts. Do not wait to send in your tax information. Do not wait to implement any new filing system for bills, receipts and invoices pile up very quickly. Do not wait to gather documents for it is better to notice missing documents or incorrect information in February than in March and April. Do not rely on memory. Will you remember an issue that occurred in August in January? Make notes. Take notes. Never say to yourself, “I’ll remember this when the time comes” or “It’s so simple, I’ll just follow what I did last year”. The simplest of notes will make the filing process less stressful and less costly. Remember, it’s not what you remember that is important but what you don’t remember that can be crucial.
“By failing to prepare, you are preparing to fail.” “An ounce of prevention is worth a pound of cure.” Benjamin Franklin
Some do’s. Do write legibly. As one who does not possess the world’s greatest handwriting, make sure these notes will be legible to you or to someone else in the near and far future. There is no telling who may need to review your record keeping. Don’t take it for granted you will be the only one needing the tax information or that you will be available to answer any questions so make sure you have a paper trail when it comes to substantial transfers, withdrawals, etc. Be neat. Do put everything in a neat file as they arrive, do not procrastinate, it is too easy to misplace important data. Confirm that all your all receipts are clearly labeled with explanation/description, amounts, names and dates. Do compare current year’s information, tax data and statements to prior years before mailing/meeting the preparer. (Did you get the equivalent number of 1099’s?) Do compare the completed return to prior years. Do photocopy any documents that are being delivered, mailed and handed over to your preparer. Do get supporting documents for your deductions such as your pharmacy’s year end prescription expenditure list or from your doctors and dentist to parking receipts for certain appointments. Do remember your accountant, financial advisor, etc. are not mind readers.
Income tax returns are the most imaginative fiction being written today. Herman Wouk
Why accountants get hired: The interview for a job went something like this: Asked how much two plus two is, the engineer said four, the businessman said four, the accountant quietly whispered, “What do you want it be”.
The more the preparer knows about your situation, the more complex your finances, the more time needed for proper tax planning and financial preparation. Creative accounting does not have to be something illegal, shady or questionable. There are rules and codes that can be/are for your benefit. Tax preparation is just the beginning, just a small part of good financial planning.
I hope I shall possess firmness and virtue enough to maintain what I consider the most enviable of all titles, the character of an honest man. George Washington
Ask your accountant, financial advisors, even your friends may have something interesting that may be applicable to your individual, unique situation. Special thanks to Howard Russo, CPA for his input and advice.
#1013
Glenn Slaby Blog