Hola taxpayers. This is the time of year when we begin to prepare for the semi-religious ritual of organizing for the preparation of our tax returns. Thanksgiving is over. Christmas is over. New Years is over. Enough of gluttony and over-indulgence. The fun is over, and this proves it! Therefore, it seems like a good time to pass some tips your way on how to organize you data.
There are many acceptable methods to retain and organize tax materials. Personally, I keep mine in a filing cabinet, filed under "Junk." But the most important thing to be aware of is, what to save and how to organize. The following is an example of basic categories.
Reporting Data: These consist of little pieces of paper that people send you that contain information relating to various items of income and deductions. We are talking about information such as W-2s, mortgage statements, 1099s, etc.. There are two important things to remember about this stuff: 1) they are easy to misplace, and 2) the IRS gets a copy also. So, just because you didn't receive a 1099 from one of your free-lance production clients, don't think you can get away with not reporting it. Fortunately, all this stuff comes at the same time of year, like now. So keep an envelope or old tortilla bag handy.
Canceled Checks: These should be sorted into basic categories. And if you don't know what categories Raoul is talking about, perhaps you should not be doing this yourself. It is always a good idea to match up checks with applicable business receipts. For instance, a check to Silo for a CD player is not documentary evidence. They also sell microwaves and gas dryers. And remember, there are probably some December 1994 checks in your January 1995 bank statement. You take your deduction when you write the check, not when it clears.
Credit Cards: When you use that plastic, you get a little piece of flimsy paper that is practically impossible to keep from disappearing. And the fact that they are useful for other purposes doesn't help either. (Tip - stay away from Diners Club; they burn up the side.) But the really good thing about credit cards is that all companies provide you with a monthly or annual recap. Never trash those! These recaps represent a handy little chronological record of your activities; and, they are also qualified documentation. If you didn't save them, call the 800 number now and request copies. It does not take very long and is reasonably priced. They are very valuable if you get on the program late and have to reconstruct your activities.
Importante! If you charge something on a card at the end of the year, you have the option of taking the deduction, that is, even if you did not pay for it until the next year!
Business Diary: Anyone in your business should probably be keeping a diary. Unlike your amigo Raoul, who has spent a lot of time trying to cover his tracks, you should be trying to leave tracks -- specifically, of your business activities. Not only is a diary required by the Federales in most audit situations, but it can also be an excellent business tool and working aid. Your diary should be a record of where you went, what you did, who you saw, how many pesos you dropped, and why. It is the principle vehicle for keeping track of automobile expenses, business entertainment, and cash expenditures, among other things. If you haven't been keeping one, start today. Raoul says, "you'll be glad you did."
To summarize, when you've finished assembling all of this crapola and reviewing it, you should have a pretty good idea of what your year was all about. This is exactly what your tax return is all about -- a summary of your financial year. Good preparation is the key to reconstruction the year and filling in the blanks. But, I must be honest with you. This process can cause a terminal case of boredom. So, I suggest you try to spice it up. Spread all this stuff out on the floor, open a bottle of tequila with your significant other, and get naked. Start early, and bueno suerte.
As announced last month, RAP members can now fax Raoul with your tax/financial questions and get answers free of charge! We had a couple of members ask about the skinny on the "home office deduction," a continually changing and confusing issue. We'll talk about that one next month!
RAOUL'S TAX TIP OF THE MONTH
Directly from Research Institute of America, Inc., Complete Analysis of the 1986 Tax Reform Act (El Stinko Grande):
"1986 Act: Code Section 1709 (a): The 1986 Act exempts income derived directly from the sale of reindeer and reindeer products from federal income tax...."
Do you love it? And they said that there were no more loopholes. So, if you have a nice sized yard, hip neighbors, and can stand the noise and the smell, go for it!