Tax Lessons Learned 2011

Last year, doing my taxes was a breeze. I used TurboTax’s free filing option, and all I had to do was plug in information from my W-2 and 1099 forms and answer simple questions about myself.

Even the state filing was simple. I did it by hand to save the $35 or so, and it took about an hour to do a few easy calculations and plug in the pertinent information from the Federal form, which TurboTax let me print.

This year, however, my tax situation is a little bit more complicated. With the success of this blog came a complicated tax scenario when I realized I had to make estimated quarterly tax payments.

After flipping out and thinking that I was going to have to pay an underpayment penalty and getting lucky with the timing to avoid it, I got to this year’s taxes. Again, I inputted my information from my forms, but this time I had a lot of information that wasn’t included on any 1099.

It all had to come from my records. I think I do a good job keeping track of advertisers and expenses, but since some payments come by check and others by paypal and others sources, it requires a bit of work to keep everything under control.

Going through all these taxes taught me some important lessons that I will be sure to keep in mind throughout 2011.

1. Keep Track of Everything in a Separate File

When everything is lumped together, it’s easy to forget how much you made in a certain venture or which shipping costs were business related. Get a separate space for your business transactions. Keep track of them in a separate spreadsheet and you’ll have a much easier time come tax time in 2012.

2. Keep Receipts

If the IRS decides to audit you and you have no record of travel expenses or home office equipment, you will be questioned. And it won’t be very fun for you. By keeping receipts, an audit will be nothing to be scared of. Since you have the proof to back up your claims, you’ll be able that everything you reported is true.

3. Review Monthly

It took me a few hours to reconcile my Mint.com account with my other accounts. There were payments that I couldn’t remember where they were from and sometimes I used the names of companies and others the names of individuals. It was a mess. By reviewing monthly, everything will be in the front of my mind. No having to dig through emails or do brain exercises to remember transactions that occurred over a year ago.

I’ve been doing this with my recent business venture, and it’s a great way to review progress as well as look ahead to the coming few weeks to see where things can be improved.

Readers, what lessons have you learned from doing taxes?

13 Responses to Tax Lessons Learned 2011

  1. I’ve been avoiding doing my taxes because I know they’re going to be complicated and I don’t know if I’m gonna try to do it on my own or go to an accountant. I never incorporated my business (blog) and literally haven’t made a dollar in profit, but I have had a lot of expenses and I’m not sure how to deal with that.

    I wish I had tips, but I only have questions. At least I do have receipts for everything.

    • Daniel says:

      @Kevin McKee, Sounds easy to me, just total up your business expenses and plug them on! As long as you’re not showing a loss year after year, you should be straight v

  2. Ira says:

    Rather than use Excel, I recommend a program like Quicken or Microsoft Money. You enter all your income and experts in one place but can sort by categories. You can also generate customized reports for tax categories, business, etc. In addition, you can export directly to programs like TuboTax.

    • Daniel says:

      @Ira, Sounds a lot like Mint, which actually is an intuit product (like turbotax). In my case, I just need total numbers (for income and expenses), so importing isn’t necessary either.

      The thing I like about doing it in a spreadsheet is that with google dogs, I can edit it anywhere. So when money comes in, I can record it before I forget about it.

      Also, I’m pretty sure Microsoft money doesn’t exist anymore, they stopped supporting it last year if I remember correctly.

      • Ira says:

        @Daniel, Why do you need just total numbers? Schedule C requires listing of business expenses by category.

        • Daniel says:

          @Ira, You’re right, and I remember that being the least of my worries. There were only two or three categories I had to consider. That took about 5 minutes, a drop in the bucket compared to the time spent actually gathering all the data!

  3. Miss T says:

    We keep all of our receipts in a bin. That way if a warranty issue ever comes up we are ok. We track all of our transactions in Quicken so we have a complete record for tax time. We also keep a file for each year where we put pay stubs etc in so we only have to pull out the one file at tax time.

    • Daniel says:

      @Miss T, I don’t do a good enough job of keeping the warranty receipts in one place. There’s nothing more frustrating than having a problem that if only you had the receipt, you’d be able to get fixed for free!

  4. I have already done mine, but have not filed them (they can wait for the money). I was not looking forward to doing mine this year just like kevin, not because they would be complicated (they were not) but because I was almost positive I would owe. Unfortunately, I was right, and I did indeed owe this year. Need to re-adjust for next year, though.

  5. Best way to learn about taxes is to do your own. I’ve made numerous mistakes in the best, but have learned from every single one of them.

    I’m still kind of perplexed by the quarterly tax thing for blogging. Is it just absolutely a no no to pay taxes once a year when you do your own personal income taxes?

    • Daniel says:

      @Financial Samurai, I think so…it seems like you’re supposed to pay as it comes in, not simply once a year. Thought I don’t see how they’d be able to determine that, maybe it’s like other business taxes: based on the honor system.

  6. I still only prepare and pay my taxes once a year and really don’t want to go to the whole quarterly system. This year, my taxes are a bit more complicated, but only because I now have to add in a few additional expenses with my blog. However, you make a good point about keeping things separated. One of my accounts is getting out of hand because too many entities are mixed up into one big lump. I’m going to have to remedy this soon!

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