Taxes are hard to prepare. You know this now more than ever. Having completed your 2014 tax filing, you know what worked and what didn’t, what was easy and what was difficult. There are always certain sections, if you are preparing your taxes yourself, that leave you scratching your head. This is especially true if you work for yourself, as I do. For someone who is self-employed, it is especially important to be scrupulous in your tax filing and preparation to make sure you don’t have any trouble with the IRS down the road. Here are 3 ways I make sure that my taxes are above board each year, to avoid headaches and, most importantly, audits.
1) I Record All Income and Save Taxes as I Go. As a self-employed individual, I have to pay taxes once a quarter. These taxes amount to almost 30% of my income. Ouch. In order to make sure I don’t have any surprises, I always save for taxes as I go. It was a discipline that was difficult at first, but it’s easier now. I have a special savings account devoted to taxes. So each check I get, I immediately throw 30% of it in there, and make note of the date, client, and job for which I was paid on a handy spreadsheet I update all the time for this purpose. By doing this, I am much more likely to stay in the good graces of the Internal Revenue Service.
2) I Keep Careful Record of All Investments. I have a handful of investments growing in various places, so I’ve got to make sure all of these are accounted for. Before tax time, I call up every institution with whom I have investments and make sure they’re sending me the documentation I need at the correct address. I do this because I have moved a lot in the past 2 years. And now that I’m in one place to stay, things still end up at the wrong address. It can be a pain to have to get these places to resend tax documents, so I like to double check that everything I need is coming at the right time to the right place. Now make sure you’re not forgetting any investments. You IRA? Your 401(k)? CMC Markets and other day trading? Once you’ve got it all, keep track of it.
3) Hire the Pros. At the end of the day, I usually hire a professional. It costs a little more, but it’s worth it to me. Because I have money coming from so many chaotic sources, it gives me peace of mind to know that someone who does this all day has put my numbers in order. Many professionals offer audit protection too, making them liable for any mistakes that may have slipped through your taxes. In the end, the IRS really just wants their money, so if problems pop up you can usually just pay and the issue is resolved. But by hiring the pros you negate the possibility of negative issues flying back in your face. Taxes are resolved in a sitting, and you can get back to your life.