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Less Taxing Tips

What can we do to make April 15 and October 15 less "taxing?" for both of us?

Simplify the process and ease the pain--

1. Limit the number of accounts in your chart of accounts. Your chart of accounts (the list of accounts you maintain to keep track of revenue, expense, assets and liabilities) does not have to be complicated. You don't need hundreds of separate categories of income, expense, assets and liabilities. When you prepare a chart of accounts using software or other bookkeeping system, start with the line item descriptions on the tax form you will be filing. For example, if your business is a sole proprietorship, you will complete form 1040 Schedule C. Create your business' chart of accounts for income and expense using those categories. A common problem that frustrates accountants is clients who have created numerous accounts all describing the same transaction. Common examples of similar, confusing accounts are: office expenses, office supplies, administrative expenses and administrative expenses.

2. Start your tax preparation during the tax year. A great saying, traditionally applied to backpacking, is "Watch the Ounces, and the Pounds Take Care of Themselves." In other words, many small timesaving acts can save you hours of tax frustration. For example, when you are figuring the tip at a business meal, write down on the receipt the person you met and the business purpose of the meal. If you don't make that notation, you probably won't remember any of the details of that meeting. Compounding this problem: you dine with clients and family at the same restaurants. The same problem applies to office supplies: were they for your business or were they your kids school supplies?

3. Keep your receipts, but be reasonable. Should you keep numerous receipts that won't add to more than a few hundred dollars? Probably not if you spend hours and hours filing and recording them. Your time would be better spent generating business.

4. Give your tax preparer the "bottom line." If you use a tax preparer, remember their role. They are on your side! They are not agents of the IRS. They will take your word if you tell them a deduction is, for example, a business meal. Don't waste their time (and yours) bombarding them with all of the receipts and documents of your business year. Just give them the totals from your simplified chart of accounts. The main exception to this is property transactions where you should present documentation of the event. You also should expect your tax return preparer; however, to question transactions that are inconsistent or unreasonable.

5. Be kind to your tax return preparer. Although to you, your tax return is the most important one on the planet, to your accountant, it is one of hundreds they will see that year. If you want your share of their attention, get your information to them early so they can focus on it before the "heat of battle" approaches. They will love you for it.

6. Separate bookkeeping from tax return preparation. If you march into your accountant's office with, literally, a shoebox full of receipts, most accountants will feel compelled to make sense out of them before they do your return. Your "tax return" bill will reflect some bookkeeping and you will be upset. You, on the other hand, think your accountant should just be able to take your receipts and produce a tax return. If you want bookkeeping services, then the shoebox approach is acceptable. But expect to pay for it.