I 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:
- Tax Deductions for the Self Employed.
- Preparing My Income Tax Return: How I Organize My Tax Documents.
photo credit: woodsy.