The Renegade Organizer
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Take the Sting out of Tax Season

Perhaps you’ve already filed your 2010 taxes and you are relaxing during “tax week”. Perhaps you are desperately trying to get your taxes out by the 15th. Perhaps you’ve already filed an extension and have put it out of your mind until October 14th.

Regardless, let’s talk about what to do to create a better tax season next year.

First of all, let’s simplify what it means to prepare for taxes:

In order to be ready to do your taxes you need to know:

1. How much money you made.
2. How much money you spent in each tax deductible category.

That’s all you need for the basics. In your situation you may have other specific needs, and we’ll address those in a minute.

So how do we do this?

Finding out how much money you made:

You’re going to need a tracking instrument.

If you’re using accounting software: QuickBooks, PeachTree etc., it will take care of that for you. Of course, you have to actually be USING the software. It turns out that installing it on your computer doesn’t actually help you with your taxes at all.

If you don’t want to use software, you can use a spreadsheet – that’s what I do.

It’s not about how sophisticated your software is. As usual, it’s about you using it consistently. That means that you have to must set aside time to do this on a regular basis.

How much money you spent in each tax deductible category

First, ask your CPA to give you your itemized deduction categories, and any other deductions that you need to track throughout the year.

Now, create a way to track them.

If you want to do this online you can create an excel spreadsheet with columns for each of your itemized deduction categories.  If you want something more robust, there is all kinds of software to do this. Get whatever you like, it doesn’t really matter. What’s important here is that you use the software consistently.

If you are going to track using receipts, then allow me to suggest that you store your receipts based on the itemized deduction category – NOT by month. I suggest this for a couple of reasons:

  1. I always advocate filing things based on how you use them, and we use expenses based on the itemized deduction categories.
  2. If you get audited (which is when you’re going to need to bust these receipts out again), they are going to ask you to prove a category or categories.  For example, they will ask you to prove your “meals and entertainment” expenses, they will not ask you to prove your February expenses, so it will do you no good to store your receipts by month.

I’ve taken a number of clients through audits.  I can’t help you if you tried to write off that week in Vegas as a business expense, but I can assure you that those who go in more organized have a MUCH better experience with a much more sympathetic auditor.

In the end, it’s about a start to finish system:

Decide what you are using for your base records:  Bank statements, credit card statements or receipts.  I recommend using your bank statements and credit card statements (and not paying for business expenses in cash) and then just throwing your receipts into envelopes by itemized deduction categories in case you get audited.

Choose a way to keep track of the numbers (Excel, specialized software, a handwritten ledger etc.)

Create time to do this and then keep those appointments.

Since we started by asking your accountant what they need, then tracked that information throughout the year, when it comes to tax time it will be really easy (not to mention fast) to give your accountant exactly what they need.

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