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?