It's October 16th, the day after the final due date for 2006 tax returns. Yesterday, the ProVision office was scurrying about getting many tax returns to the IRS for our clients who waited until the last minute to give us their tax return information.
So I started wondering – Why do so many people wait until the last minute to get their tax return information to their preparers? We experience the same frantic rush twice a year, in April and in October. How could we reduce the stress we feel each year when we scramble to get our tax return info together for our CPA's?
The key is DOCUMENTATION. The problem is that most people do not have a good system for maintaining the documentation for their tax returns. It's bad enough that we have to deal with taxes, but add in bookkeeping and logs and receipts and it's no wonder so many people put off doing their taxes.
So, here are a few hints to simple documentation and making life easier for tax time. First, HIRE A BOOKKEEPER!!! This is some of the best leverage available.
Second, buy a bunch of manilla folders. Then, go to http://www.irs.gov and pull a copy of Schedule C from their 1040 forms file. At the top of each folder, write one of the expense categories from the Schedule C. Then, as you have receipts for deductible items, put them in the appropriate manilla folder. Then, when tax time comes, simple add up all of the receipts in each category and give the totals to your CPA (they don't really need the receipts and it will save you considerable professional fees if you do the addition yourself).
Third, set a date when you will get all of your tax information to your CPA. Even if you want to extend your tax return, get your information in early and then simply as your CPA to file an extension.
Fourth, meet with your CPA/Tax Coach in November to figure out what you might owe in April and what might need to be done to ensure a lower tax bill the following year. Your Tax Coach can give you additional ideas for documentation.
Don't let tax return time stress you out. Get your documentation done early and get it to your Tax Coach early so you can get your return done in plenty of time for the deadlines.