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Tax Season Preparation

By Mary E. Adair


This was originally published last year (during 1999) and is being published now in hopes of helping some of you get your records into shape for the current tax season.

Organize For Yourself!

To face next year with more aplomb when the tax season rolls around, now is the time to begin to organize your 1999 records. If you do not have all your records on hand now, you may be able to get an extension. But be aware of this: Any taxes due when your income tax is figured, are due when you send in an extension. If the amount due is not sent in, then not only do you owe the taxes, but an accrued interest since April 15 until the Internal Revenue Service actually receives the return.

There are real reasons to get extensions but they fall into the category of extenuating circumstances-inadvertently destroyed documentation for deductions of businesses or individuals, usually by fire or natural disasters is one viable and excusable reason for an extension. Death of one of the joint return taxpayers is another reason for delay, in fact this can be held off for the length of time to settle the estate-approximately a year. (NO, no, no, I am not suggesting purposeful elimination of the joint taxpayer in order to delay filing .... and this is intended as a humorous remark, so please do not consider it calloused.)

The avoidance of tax preparation almost becomes an art with some people. They deliberately use their check books out of sequence in of a misplaced belief that if their checks are difficult to put into logical order the internal revenue service will not bother to do so, or to penalize them. Some persons do Guestimate returns on their own, and may actually get a better refund to start with, but when the computers run across the discrepancies, as they will, the corrected version will be demanded and by then additional penalties and interest will have accrued. The truth is that such continual out of sequence use of numbered documents (some do invoices and receipts the same way) is like a "FLAG" to the IRS. Therefore, neat orderly records are to be preferred, and after all, some of us do need to know where we stand ourselves during any specific month of the year, not only for tax season.

As for the internal revenue service not bothering to put things into order for an audit--that's where my job comes in much of the time. When someone comes up for an audit and their records are so terribly confused and ill-kept, the Internal Revenue Service can request that the records be straightened out and that a good tax consultant be consulted for the chore as the first step of an audit. Voila! here we are, not so ready sometimes as able, but definitely capable, so our name is often the one listed as being available for what could be called 'remedial tax work.' It is bitter-sweet to have such a fine reputation. Bitter, because it is a chore, and occasionally a lengthy one. Sweet, because it is a fine reputation, and because we have come in contact with some very interesting and nice people--both on the client side and on the agent side.

No, IRS agents do not all look like James Bond, though some I've met are quite handsome, nor do they appear as someone from "Muggy Swamp." Some agents are beautifully-coiffed, Brooks Brothers garbed, and razor-honed intellectuals that are so polite you feel gawky around them. Others may have that down-home quality, or seem very much like your aunt who has always been your favorite. All know their job or I assure you, they would not be on the audit team. They know what shape the records were in when we got them, and they do appreciate the effort required to whip them into audit shape in what might be deemed a brief period of time.

If you want to avoid triggering an audit, a few simple things done regularly will help. No one can promise you will not be audited because random audits are pulled at designated times by the service, but common sense can help you. If you start now and keep better records, note on the portion or copy of the invoice you retain the date paid and check number paying it, while on the memo line of the check you should record the invoice number. When paying by statement, state the date of the statement on the check's memo line. Keep all your invoices and bank statements or money order stubs (that incidentally should show an invoice number on them like the check memo) in monthly labled envelopes. Used envelopes are suitable for this--the large 8x11 bank statement or advertising envelopes are great. The period of time now recognized as accountable by the IRS is seven years, but ten is a better period to retain records. If, for instance, you have income averageing or carry overs that extend back farther than seven years in your current seven year period, then that opens the records to the audit team if necessary.

Once a year is finished and the income tax return is complete, you might want to put a copy of the return with the year's receipts, but it is wise to keep all returns in one area, box or drawer, so they are available to you for comparison during the year. It is hard to remember where things are deducted, when you only pay them annually and so the returns serve for reference. Some clients even code their invoices to the line on the 1040 where the deduction was the previous year. (Although the lines do occasionally change when we get the "new and improved" forms, this is a good way to familiarize yourself with your return.)

Some people do their records on computer now with the Quicken which is part of the microsoft package on new pc's, and can code each expense all year. This way it is simple to see where your expenses are in a run-a-way stage by running a report on the general ledger for just the one month after your bank statement is reconciled. Staying on top of your expenditures with such reports allows you to plan the next month with more expertise. You can finesse a large insurance payment that will be coming due in August, for instance, by planning ahead by a few months, and actually save yourself around 24 to 36 dollars a year that paying monthly adds to your billing. Consider such money as your fund for special personal purchases or toward a dream vacation for being so clever as to structure your expenses to avoid having to pay those installment charges.

With a few other common sense manuevers like buying in bulk and breaking up into smaller units for freezing or dry storage those foods you know you are going to definitely need. During a sale or when in season and plentiful one can buy multiples of desired foods or even cleaning supplies or other household goods and save over what buying as needed would cost. You could calculate these savings and pay it into your dream fund, too. Even the savings of long distance calling could be figured as your bonus for wise words in a wise time frame that allow you to cut down on your communication charges.

When you begin to realize that you are the one in charge of charges, many things can happen. Credit cards vary from one to another and so does the interest and finance charges they add to your bill for the right to delay paying for what you want now. The best recourse is to pay all at the receipt of the bill, but few of us are so well disciplined that we can do this once the charge mind-set becomes part of our actions. Timing is everything when you get right down to it, and not getting to it with the payment of your account or the amount that will bring the balance down some (be aware that some credit card companies do not list the minimum due as the amount that will lower your balance, but as the amount that they will count as a payment on time) introduces you to the penalty of a special charge for paying late. Not only is this charge made, but the making of it adds to the purchase side of the column for the card, and thus it becomes liable to additional percent figures added to your balance immediately. So, the best thing to do is only buy what you are going to be able to clear from the card when you do send the payment.

Making a few simple adjustments to your record keeping can bring the enjoyment of your hard earned cash back into your life, and prevent the giving it away in the form of penalties and finance charges. Once you begin to see where you can cut down on your expenses by such techniques, others will occur to you. If you come up with some gem-dandy saving hints, please feel free to share them with us here at Penstubs Online. We will pass them on to our readers with your name as the hint-giver unless you choose to not be named and just let them be published anonymously. To do this, you will need to identify yourself to us, but request that your name be withheld from publication.

Following some of the hints from this article should help put a smile on your face again, even if it is almost that dread U.S.A. date, the Taxes-Are-Due-Today-Day, April 15.  

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