Around this time of year, there are a lot of assumptions about taxes. Since I work with taxes for a living, many folks assume that I have a huge advantage over other taxpayers. Don't be fooled -- we're all in the same boat.
I do, however, have the benefit of experience working with a number of other taxpayers and watching what they've done right (and wrong). Over the years, I've figured out a few things. Here are a few of my secrets to help you through tax season:1. You Don't Have to Do it All
Here's my first big confession: I don't do my own taxes. In fact, I haven't done my own taxes in years. All through law school, I did my own taxes; with wages from my part-time jobs and merely claiming the standard deduction, it was a breeze. Flash ahead a number of years ... I'm married, I have small children and I run a business. Even if my taxes were simple (they're not), I don't have the time to struggle through another Schedule A. So I don't. I pay someone to do the tax returns for the business and for my family. It's one less thing on my plate this time of year. And despite my inner control freak, I consider it money well spent.
2. It's Okay to File for an Extension
Filing for an extension doesn't automatically trigger an audit, contrary to popular belief. It's much better to file a complete and accurate return on extension than to file a flawed and inaccurate return in April. Personally, this is my busiest time of year. In addition, I own a business, so like many of you, I won't have a complete financial picture until much closer to the wire -- my Schedule K-1 from my S corporation won't be in my hands until my business income tax return is complete. So, rather than rush around in a big panic, I file for an extension when I need to (which is more often than not as of late). It's quick and painless and gives me a little breathing room.
3. There's No Such Thing as a Perfect System
Clients often ask me how to get -- and stay -- organized at tax time. My answer sometimes surprises them. I tell them to do what works for them, not what works for me and not what works for their neighbors.
Some taxpayers are perfectly happy entering their income and expenses into an accounting software package such as Quickbooks the second that their bank statements arrive at the house. Others, like my father-in-law, prefer to use a calculator, a pencil and those giant green spreadsheets (you know someone had to still be buying them). My dad uses a simple computer spreadsheet on his laptop while my mom organizes their receipts and checks as supporting documentation. I have clients who throw everything into a giant box and just hand it over to their accountant come tax time (quick word of advice: that can get very expensive if you rely on your accountant to sort it all out).
My system? I have a couple of bins and folders for receipts, check stubs and bank statements. I sort the mail and receipts as they come in and stash them for a rainy day; my husband organizes our accounts on his computer. The point is that different organizational systems work for different taxpayers. Don't feel like you have to make your lifestyle fit a certain system. In fact, do just the opposite -- find a system that fits your lifestyle. The key is to find what works for you and stick with it.
4. Know Enough to Be Dangerous
The federal income tax code is voluminous. Even if you could master the entire thing (and trust me, nobody can), there's more to your taxes than just federal income tax returns. You may still be subject to state and local tax income returns, too, not to mention sales and use taxes, self-employment taxes, payroll taxes and more. It's a lot to take in. Nobody expects you to know everything.
But you should know enough to be dangerous. You should have more than just a passing familiarity with your own tax return. What's your filing status? Are you an itemizer or do you claim the standard deduction? Is your income mostly wages from a form W-2 or are you an independent contractor with a form 1099? Are you subject to special filing requirements because of your residency, age or other factors? At the end of the day, even if you pay a professional to do your taxes, it's your signature on your federal income tax return and you sign under penalty of perjury. Make sure you know exactly what you're signing and why.
5. Understand that Mistakes Happen
Nobody is perfect. And if they claim that they are, they're lying. The Tax Code is complex. And each of us has a lot going on in our own lives. Mistakes are bound to happen. Even Treasury Secretary Timothy Geithner has made significant mistakes in filing and paying taxes, as has Glenn Beck, Health and Human Services Secretary Kathleen Sebelius and various Obama cabinet picks.
I've been very honest about the fact that my business was audited as a result of a filing mistake using a paid preparer(!). If you think about how many tax returns you'll file over the course of your lifetime, especially if you own or manage a business, statistically, you have to understand that you will, at some time, make a mistake. The critical piece isn't so much whether you make a mistake, but how you respond to it.
Don't run from your mistake. Suck it up and fix it. And if you can't figure out how to fix it, see tip #1 and ask for help. It's not the end of the world, and this, too, will pass.
At the end of the day, there's no one size fits all answer to all your tax questions. No two taxpayers are completely alike; variations abound from filing status to dependents to deductions. But the general principles of dealing with your taxes, like people, are the same. Don't make it any more complicated than that.
Five Tax Season Secrets From a Tax Pro