I hate doing taxes

by Ryan Guina

taxesI don’t hate paying taxes. I realize that society would be very different without public money. So I am all about paying my fair share of taxes.

But I hate the act of filling out the tax forms, looking for deductions, learning the new tax rules, sifting through data, visiting the IRS webpage, and trying to determine which write-offs and deductions are allowed or not, etc. (thank goodness for TurboTax!). While I honestly don’t mind paying my share of taxes, I also don’t want to pay more than I legally have to. So I double check and triple check everything to see if there is anything I missed.

My tax situation is more complicated than last year…

My small business (this site and a series of other sites) has grown in the past year. This has been a wonderful blessing for my family, but it also makes my taxes much more difficult to handle. In 2008 I had income from about 50 different sources, or more. The companies that paid me over $600 were required to send me a 1099, which makes reporting the income on my taxes easy. However, some of the people or companies I earned money from didn’t send me any tax paperwork because they were not required to. That means I need to find all the receipts and invoices so I can report the income on my taxes.

I spent 2 hours last night sorting through receipts and other paperwork, trying to get to the point that I could finish my taxes. This is after already spending 2 hours inputting information into TurboTax. I currently have most of my information input into TurboTax Premier, but I think I will need to upgrade to the TurboTax Home and Business, which will better meet my needs (I have an LLC for my small business, a Capital One 360 Business Savings Account, and an EIN for my taxes).

Improving my record keeping system

While doing my taxes, I realized that my record keeping system for my business is woefully inadequate. I keep excellent records of my income and expenses on a spreadsheet and I can tell you exactly how much I earned by month, year, from which advertiser, etc. But I didn’t have my receipts, pay stubs, or other paperwork in order. (An issue with digital vs. physical?).

While going through my papers last night I created a better record keeping system and put all my receipts, invoices, pay stubs, and other important papers in large manila envelopes labeled “income” and “expenses” and the year. I’ve been blogging for 2 years now, so I have envelopes for 2007, 2008, and now 2009.

Being careful not to double count income – or leave anything out!

There are a few ways I earn money from this site that are considered business income, and some that are considered personal income. For example, I place $25 Capital One 360 referrals on my site so people can sign up whenever they want. People who sign up receive a $25 bonus, and I receive a $10 bonus. The $10 referral bonus I receive is reported to the IRS as interest income by ING. So I need to be careful not to count that income as business income when I do my taxes – even though I earned the money through my website. The same thing goes for the $25 Capital One 360 Business Savings Referrals, which are also reported as interest income.

I also have to be careful not to leave out any income – the last thing I want is to get audited and have the IRS dig up some records that I missed. Double checking my records to verify my income is what is taking so long. I downloaded all PayPal transactions from 2008 and have been going through it line by line. F-U-N.

I’m going to owe a lot of money this year

I am resigned to the fact that I am going to owe a lot of money to the IRS this year. Much of that is my fault because I didn’t pay estimated taxes throughout the year – I withheld additional income from my day job, which I thought would be enough. But my business income really took off in the second part of the year and I hadn’t prepared for that. It’s a good problem, but a problem nonetheless. Thankfully, I kept all the income in a savings account because I knew I would end up owing the IRS.

I shouldn’t be subjected to underpayment penalties though because I paid more taxes than last year, which means I should be covered by the safe harbor rule. I also took actions to reduce my taxes, including harvesting losses by selling some mutual funds at a loss, increasing retirement fund contributions, increasing charitable contributions, and a few other things. Again, more complications to my taxes! LOL.

It’s a pain, but a necessary one. Hopefully I can finish my taxes this weekend. I’ll probably end up writing about how much I owe and how I plan on reducing that number when I file next year’s taxes. Basically, it will entail paying estimated taxes as I go – so I don’t get slammed with a HUGE tax bill at the end of the year! Hopefully all of you have had an easier time with your taxes than I have!

Here are some related resources about how to organize your taxes:

photo credit: woodsy.

Published or updated May 21, 2013.
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{ 18 comments… read them below or add one }

1 Mrs. Micah

I hear ya on doing taxes. Midway through the year I put together a big total income spreadsheet which helped a LOT during tax time. I only update it about once a month, but it makes a difference.

Still found myself digging up things like hosting invoices and the like.


2 Ryan

Mrs. Micah: I keep up with my income spreadsheet as I receive income, which makes it easier on me. I update the spreadsheet, then file the e-mail or invoice/receipt.

The thing that has been taking so long for me is the payments I received from PayPal that weren’t reported to the IRS (basically income not reported via 1099), and finding all the receipts from my expenses… Ughhh.


3 Kristen

The only reason that I don’t hate tax time is because I’m very lucky to have an uncle who is a CPA. He does all of our taxes and even addresses the envelopes for us. It’s a good thing we have professional help though. My husband has a lot of deductions for his job. We had the dubious honor of being tied for the most complicated tax return my uncle had to do this year!


4 Ryan

Kristen: It’s always nice to have someone in the family that can help out! I may just hand over my taxes to an accountant next year – I think it will be worth the cost!


5 MoneyNing

I was just telling my wife how I spent one full day on organizing my tax records and I pay an accountant to file my taxes.

Filing taxes suck ๐Ÿ™‚ At least I’m done now (hopefully).


6 Ryan

MoneyNing: I’m thinking about hiring an accountant next year, but even if I do, I’m sure there will still be work on my end. My plan is to keep better records this time around, which will hopefully make things much easier next year!


7 Miranda

Paying estimated taxes really helped me this year. It was a great thing to keep me from getting overwhelmed. And since my taxes got more complicated last year, I started using an accountant. Totally worth the money.

I print out a statement from PayPal every month and file it away as supporting documentation. It makes things a little easier in terms of documenting that mode of income.

Sorry things are such a bummer for you this go ๐Ÿ™ Next year, they should be a little easier, now that you understand how successful you are!


8 Ryan

Miranda: Great idea regarding printing out a PayPal statement each month. I think I will go back and do that for last year (reconciling my PayPal income is the last remaining item on my to do list before filing). I exported everything into an Excel spreadsheet, but I think a paper copy will work better for me.

Paying estimated taxes is definitely my plan going forward. It will make everything easier for me. An accountant is something I am seriously considering – I have no problem paying someone who will be more efficient and more accurate than me. I’ll gladly write a check to remove this bit of stress from my life!


9 Benjamin

Congratulations on the success of your business! That is an excellent “problem” to have indeed.

My wife and I welcomed our second child in Sept so that accounted for us receiving a bit more back than I had originally thought! I always try to keep my refunds to a minimum each year, but I was certainly pleased to learn that I had miscalculated!


10 Ryan

Benjamin: Yeah, it’s not a bad problem, it just makes taxes a little more complicated. I don’t mind owing more money because a) that means I earned more money, and b) I saved everything I earned in a savings account and haven’t spent any of it. So I will simply withdraw it and send it in.

Our first child is on the way, which should help out a little bit next tax season! Congrats on your second! ๐Ÿ™‚


11 Andy

I hear you. I actually formed my S-corp recently after meeting with my accountant (for my personal taxes). She said if you make more than $2000 a year, forming an S-corp is a no brainer. No more self-employment taxes and the IRS is less likely to audit you as oppposed to deductions claimed in a 1040 C. Also, I just pay her $50 a month to tax care of all my taxes and transactions! Simpler.


12 Martin

I am a tax accountant and I am enjoying these posts immensely.
My two cents:

If you have a business, buy quickbooks software (money well spent). Its cheap and when you reconcile your accounts you won’t forget or double account any income or expenses.

FYI- the IRS has announced that they will be using paypal records to make sure that 1099s are being issued and reported.


13 Ryan

Martin: Thanks for the tips. I’ve looked at QuickBooks and have considered it. I keep my Excel spreadsheet available on multiple computers, but I think QuickBooks has an online version.

As for PayPal, I plan on going through line by line to ensure I catch everything. The last thing I want to do is miss a large portion of income and get hit with penalties or fines. I receive a lot of payments via PayPal from internet companies located in the UK, and I don’t think they are required to give 1099’s, so I won’t have paperwork on this – they will need to be reported as 1099-MISC. I report everything though – like I mentioned, I don’t want to cheat.


14 Bob Meighan

I’m glad to hear you use TurboTax to ensure you don’t pay a penny more than necessary and get every deduction/credit that you deserve. While we can’t help much in the way of organizing your information (other than recommending Quicken or QuickBooks), we certainly can help save you time and frustration.

By the way, you mentioned that you need to file an LLC. Depending on the nature of your LLC, you may need TurboTax for Business instead of Home & Business. Regardless, I would not suggest you upgrade at this point unless you find a need. Many customers think they need to upgrade to H&B simply because they have a home-based business. If Premier is working for you now, then stick with it.

I better get on to doing my return soon (or my extension)!

Bob Meighan
VP, TurboTax


15 Ryan

Bob: Thank you for contacting me. I finished gathering my paperwork this evening, and I plan on running through TurboTax Premier from the beginning sometime this week. I will have a better idea of my needs after I do that. I am still using TurboTax Premier, and haven’t yet determined if it is necessary to upgrade to TurboTax Home & Business.

I am the sole member of my LLC and there shouldn’t be anything complicated with my business structure, so I don’t think my tax situation will require TurboTax for Business. But I will look into it. After my experience this year I plan on investigating QuickBooks and/or hiring and accountant. I don’t want a repeat of this year!

Thanks for the tips!


16 Kristy @ Master Your Card

Yup, I’m with you on doing taxes. It’s not the act of actually paying my share of taxes, but the whole process of filing that I can’t stand. Matter of fact, here we are coming up on April 1, and I have yet to file mine. I’ve done well just to keep everything in one place, but I’ll probably wait until the last possible minute to do them. I hope not, but that’s just me. It’s funny too, because Jonathan wanted me to write a post about taxes and I had a good laugh over that. As financially savvy as I am, taxes are not my forte!


17 Ryan

Kristy:Taxes are not my forte either. I finally got all my supporting paperwork together last night. It took several hours on top of the 4 hours I’ve already put in. All told, it will take me entirely too long to do my taxes this year. Ugh.

I have made improvements to my record keeping system, but I may hire out next year. It will save me time and frustration, and it’s a qualified business expense, which is an added bonus!


18 DDFD at DivorcedDadFrugalDad

Solid advice on a necessary evil . . . just be sure to get every penny back that you are legally entitled to.

I always start next year’s tax folders, just as I wrap up this year’s folders– it is so hard to stay organized that I try to work at it at every turn.


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