Saturday, April 16, 2011

Tax Time Observations

The tax filing deadline is on Monday 18th and in the last week or two I've been approached by friends and colleagues with last minute questions and emergencies which is why I haven't posted for three weeks. One conversation went like this:

Her: "So I need my 1099 from a customer, but I haven't received it yet."
Me: "Well, not everyone bothers to send out 1099s."
Her: "But I need to know how much I earned."
Me: "Just add up how much money went into your bank account."
Her: "I don't know how much money went into my bank account."
Me: "Well, you should go through your bank statements and add up the income."
Her: "I don't keep my bank statements."

And that was the end of that conversation because I was literally speechless. I was more concerned that she didn't keep her paperwork than surprised that she didn't know how much she earned.

In case this is you and you are keen to investigate how you might turn over a new leaf, please read on. I accept that many people aren't interested in the slightest about how much they earn; the aforementioned person didn't seem fazed that she had no idea what her tax liability might be one week before the filing deadline. I am also doggedly resigned to the fact that many busy people simply don't want to "bother with that stuff" but you may be missing out on deductions and credits that will relieve your tax burden if you can monitor your cash flow at least monthly.

Tips:

1. An accountant is not just for tax time; he's for life.

A periodical meeting for an hour with your accountant will work wonders to keep him apprised of your workflow and finances. He will take valuable notes that will be more useful than you will ever know come tax time. Most accountants and bookkeepers complain that they do a highly responsible job, but are kept mostly in the dark by their clients. Let your accountant or bookkeeper into your life and business; strike up a relationship and he will think about your situation throughout the year and have suggestions for you at the most fundamental moments in your life. If you can't afford it, barter his invaluable attention for your services. Accountants are not scary, capitalist number crunchers to be feared: they like art, photography, music and books. They frequently procure services like advertising, marketing, editing and website maintenance which you can offer them in return. They like to take the occasional jaunt into the wilderness with their notepads. Invite them over to your office for coffee. They keep appraised of tax law and are there to help you.

2. Keep your paperwork.

Get a large recycling bag, or box if you have the space, and put all your paperwork in there. Get a receipt every time you buy something, even from your landlord and utilities. If you still wish to discard your paperwork even after I've told you that its important, please *do not* put it directly into the rubbish. Shred it first. This is where my and my clients' junk mail goes:

A huge percentage - something like 80% - of all American identify theft starts by someone going through your garbage. That's why identity theft hits people like a brick in the head; they were the most vulnerable victims: those who were essentially clueless about their finances anyway. Then they have to go about dealing with finding out who stole what they had no idea they owned before someone stole it!

3. Knowledge is power.

All successful business owners know this and so should you. If you don't know what freelance jobs are profitable and which are not, how do you know which clients to choose?

If you didn't realize you spent $1100 in Starbucks last year, then of course you're going to complain that you can't afford an accountant.

Good luck and please feel free to email with any problems or questions!