The holidays are over; the holiday decorations should come down for another year, my New Year resolutions have yet to be broken and the shopping season credit card will be in the mail any day now.
And of course, before the holiday break, I read last month’s “The Sassetti Scoop” blog and applied all the available year-end tax planning tips to organize my affairs with the goal of lowering my taxes. Great job, now what?
If you are like me, we all go into a “tax funk” and ignore filing until we start to see the next wave of on-line tips about filing for a quick refund, taking every possible deduction and the inevitable news reports of some poor soul going to jail for cheating on his or her taxes. Is it me, or do the amounts involved always seem minor compared to the punishment handed out; no doubt a seasonal scare tactic to keep all us taxpayers in line? I am duly threatened.
Between now and April 15 we do need to get our taxes filed, but before we can do that, we need to assemble all the records needed to actually prepare the return. Certain people have the ability to keep tax records “between their ears” and justify this approach saying- “I know what my deductions should be and if the IRS wants to audit me, I can find the records. After all, why waste time now on something I might never need to produce?” These individuals invariably are selected to be audited and usually have experienced a flood, moved or endure some disaster and find they no longer have any records for the year being audited. From experience, I can tell you the IRS generally won’t accept verbal records, even when accompanied by interpretive dance routines and long excuses; they are trained not to listen. They all seem to be from Missouri and simply want you to show them your records. Don’t be that taxpayer.
Instead, develop a plan to gather the records needed to prepare a complete and accurate return. If your tax preparer sends you an organizer, make sure to use it. That organizer is tailored to your facts and circumstances from last year and is an excellent resource to help you remember what documents you should expect to accumulate to prepare this year’s returns. Each section has questions which are designed to tip off your preparer about possible taxable events which may have occurred, changes in your demographics and planning opportunities. Moving, a new job, a change in dependents or bank accounts are all items that impact your tax return and invite a conversation that will help your preparer correctly complete your return. As tedious as it seems, it is important to answer the questions, or just put your own question mark next to a question that you are not sure how to answer. Your preparer should follow up with you.
Some of your records will show up right after the New Year, such as W-2s. Other records will arrive closer to April (partnership K-1s are notorious for showing up at the last minute) and some might not be sent to you unless you request them (bank interest earned under $10). Go through the organizer and know what records you should expect and follow up if they don’t arrive. Certain records only you will have and you will need to go through your check book and credit card bills to look for things like estimated tax payments, medical and dental expenses and small contributions. Obtain copies of the cancelled checks and any receipts you have for those types of expenses.
As you receive your tax records, be sure to you have a place to accumulate these records. Do not use a corner of your dining room table. Besides upsetting your spouse, you will have company over and need to clear off the table and, most probably, once moved the records will be lost forever. Rather, designate a file area and put your tax records into the file as soon as they arrive. Some people use the envelope the organizer came in. Others, with more records, use a separate file folder.
However you choose to assemble your records, by having a plan, completing the organizer and designating a separate place to accumulate your tax records, you will be well on your way to getting your return prepared without the usual April 15th drama. Try it, you’ll like it!
Dan Finnegan
Partner
