Taxes … uhgg!
What an ordeal! This is the first year in many years that we’ve had to seriously contend with the IRS. In a way that’s good news but in other ways it isn’t. The good news is that we finally made enough money that we need to file income tax returns. The bad news is all the hoops we had to jump through to calculate those taxes.
Don’t get me wrong. I’m not opposed to paying taxes. We all benefit from a strong government. What I’m disgusted with is the overly complicated way those taxes are computed.
Our first mistake was in not seeing ahead. We were caught flat-footed and had not foreseen the myriad record keeping needed to properly take the deductions we had coming for our income as writers. That meant (literally!) days of going through receipts and vehicle records to find the deductions we were rightly entitled to take.
And while it’s a lot like the farmer fixing the fence after the cattle escaped, we’re doing much better at our record keeping this year.
Our second mistake was in not putting enough back to pay those taxes. What we should have been doing was estimating our taxes for the coming year and paying those in to the IRS on a quarterly basis (or at least establishing a savings account for the purpose so that we’d have it when we needed it!). Again, a little foresight would have saved a lot of work later in the year.
We’ve made some changes this year and established ourselves as an S Corporation primarily to save money on taxes but that also brings in more paperwork and record keeping.
Besides changing to an S Corp. we are also looking for tax shelters. Our best option so far is a Health Savings Account. Mainly because with the changes mandated by Obamacare there are a lot of holes that need to be filled in our healthcare regimen and we can now plug those holes with an HSA plus get some tax benefits out of the deal. After that is built up we may look into some other options for tax sheltered income.
I’m also studying up on what we can use for valid business deductions and setting up some spreadsheets to maximize our record keeping efficiency. We could have the taxes done professionally and, while I won’t rule that out, we still need to know what we can and cannot claim as deductions and keep good records throughout the year.
As a layman the task seems staggering. The IRS offers a publication on Starting A Business and Keeping Records (Publication 583) that’s a free download at their site, or they’ll send you a paper copy upon request. That’s where I’m starting, but I’ve also ordered a couple of books on the subject to interpret the IRS information. At least they are starting points!
However, what annoys me the most is our tax code itself. The system has been amended and revised and changed so many times that it’s basically unfathomable for anyone except a professional tax preparer or those willing to spend hours upon hours of reading and studying.
Again: Even if you use a professional tax preparer or purchase a tax program for your computer, you’ll still need to know what is and isn’t deductible, and you’ll still need to keep good records.
Being the cheapskate I am, and my nature of just wanting to do things myself, it looks like I’m going to do some studying.
It shouldn’t be this way. There needs to be a tax code for this nation that is fair to all and simple enough that anyone can understand it. But I’m not holding my breath waiting for that to happen!
Photo: Fotolia/John Kwan