30-Day Persistence Challenge: Speaking of organizing--taxes

Monday, June shared how important persistence is in maintaining an organizational system. I thought now would be a good time to piggy-back off that and talk about taxes.

Yes, taxes.

I'm not talking today about how to pay them or how to save for them. Today, I want to talk about how to organize for them. This is a questions coaching clients often ask and something all freelancers have to deal with. The good news is, if we create a system and persist in using it, tax time will take less time, and, while you may still feel panicky and a little queasy, you'll feel some calm and sanity underneath that.

Creating a System

So, start with this:

• 23 manilla folders
• A marker
• Some kind of storage device: A filing cabinet is my preferred solution (you don't have to look at the files every day and I already had one), but you can also use an accordian file, a hard-side lock box or a simple pair of book ends on a shelf.
  
• Your receipts for so far this year.

Now label the files. One each for:

• Paid Invoices (you'll put your stubs in here)
  
• Accounting
• Bank charges
• Car/truck rental
• Continuing education
• Dues/organization memberships
• Health insurance
• Internet costs
• Mileage
  
• Office expenses
• Other insurance
• Other interest
• Parking/tolls
• Postage
• Printing
• Publications
• Rent/mortgage
• Repairs
• Taxes
• Telephone
• Total meals/entertainment (business related, natch)
• Travel
• Web design/hosting

Your exact categories may differ. If you, like I, don't have a car, then you'll have a category for public transportation instead of mileage. This is just to prompt your thinking. Almost anything you buy for your business is deductible. One of the few exceptions is work clothes. Sure, you may work most days in your bunny slippers and robe, but that doesn't mean the slacks and blazers you buy for work meetings can be deducted. As someone I interviewed once said, "If you can wear it in public, you can't deduct it." It doesn't matter if you want to wear those clothes on your own time.

Next, go through your receipts so far this year and start sorting. Believe me, future you will thank you for having done this now. Add a note onto gas receipts and toll receipts for where you were going. On meal receipts, write who you met with and what you talked about. Then stick them in the folder and forget them.

The Persistence Part

So how do you keep up with it? Here are a few ideas.

Create a way station.
I don't file receipts every day. But having the files at the ready makes dealing with them easier. I keep them--and a bunch of other stuff I don't want to look at every day--in the bottom tray of a trio of clear plastic stackable trays. As I write this, It's bulging with articles to scan, receipts, old article files, etc.

When I have a spare minute, I can grab a handful of papers and file them away. I don't do it all at once. I don't spend 50 minutes or three hours on it. Little and often is my motto.

Place the piles where you can see them.
I hate looking at those ugly bulging piles. If I put the trays elsewhere, chances are, those piles would lay around much, much longer than they do now.

File while you talk.
Sometimes, I'll be on the phone with a friend or with a family member who calls during work hours--I know, poor discipline--and I'll take that time to put a few things away. Or I'll shred docs that need shredding.

The Payoff

Come the beginning of the year, I do something very simple. I sit down with the files and a calculator and I write the amount and date of each receipt on the outside of the file folder. Then, I tally it all up. Takes a few minutes while watching TV at night and I have my total spending. Score.

How about you? How do you do it?

Photo by D'Arcy Norman.

30-Day Economic Stability Challenge: Setting up quarterly estimated taxes

It's well established now that I don't have the saving gene. But I've done some things to trick myself into saving. One is to set up ING accounts for important things like savings and taxes.

The second is to pay quarterly taxes.

I know a lot of people groan at quarterly taxes. It's bad enough to have to pay taxes once a year--but four times? Here are the advantages:

• It forces you to stay somewhat up to date on your savings.
• It gives you a warning every few months if you're living beyond your means: If you don't have enough money to pay quarterlies, you may be overspending.
• It gives you a concrete warning that you're underearning: Can't pay quarterlies because you're not earning enough? It can be a good kick in the butt to get you earning so you can make up for it next quarter.
• It relieves you of the insanity of trying to scrape together thousands of dollars in April if you haven't saved for it before then.

The other reason is you get penalized if you don't do it. This year, the penalty is 5% of your estimated taxes due, if you earn more than $1,000 from your business this year. So it's really worth it. I don't know about you, but I don't have extra money to give the IRS. Do you?

So how do you set them up? The easy answer is that you hire an accountant and he or she figures it out for you and sends you invoices to pay on April 15, June 15, Sept. 15 and Jan. 15 (or thereabouts).

Set it yourself

Go to the IRS Web site and download the 1040ES form. It includes a worksheet that will help you figure out how much you expect to earn to you can determine how much should be included in each payment, and it includes payment vouchers you can fill out yourself and send.

Don't leave it to chance

Most important, don't assume you'll remember to pay. Write it on your calendar and pin the vouchers to a bulletin board or someplace else you will see them regularly. I write it on my planner a few days before they're due so I don't have to get caught in the rush.

Photo by Paul Keleher.

30-Day Economic Stability Challenge: Fear not the IRS

Ugh. Taxes. This year especially, when there's so much financial turmoil, the last thing many of us want to do is turn over any money to the IRS. But it's our civic duty, if we want potholes filled, teachers paid, or any other public service on which you may not realize you rely.

I'll be the first to admit it: I don't have the money to pay all my taxes on time this year. I earned quite a bit more last year and didn't save more to compensate. If you're in that boat with me, I want to encourage you to reach out to the IRS.

They aren't as scary as you think. Or at least they don't have to be.

I have friends who have made good on years of unpaid taxes, and they did it all by calling and going down to the local branch of the IRS and talking with the nice folks there.

Just like any other creditor, all they want is their money, and they will work with you to get it however they can. Here are your options:

File for an extension
I wouldn't be surprised if a record number of people do this this year. By filling out form 4648, you can automatically extend the date by which you must file your tax return.

The downside: You'll have to pay interest and penalties on the money you don't pay now, so be prepared to cough up more.

Pay what you can
If you owe $2,000 but won't have it for a few months, you can pay, say, $500 by the 15th. Then, in a few months, you'll get a big scary letter from the IRS informing you of how much you owe and pay the rest then. If you can't pay it all then? Pay what you can and wait for another bill. Or get a payment plan.

The downside: You'll get a penalty, but it won't be as hefty if you don't file at all.

Sign up for a payment plan
This is so easy it's silly. I did this two years ago. Online. In 10 minutes. And it was over with. You can name how much you pay, and have it automatically withdrawn from your account. And you may not know it, but you don't have to pay a lot monthly for them to accept it. I paid $30 a month till it was paid off, but it wasn't a burden on me and I always knew I could meet the bill.

The downside: Again, interest and penalties.

Put it on your credit card and file for bankruptcy
My accountant told me this option as a joke (I always emphasize with him that I want all my options, no matter how far fetched). But it it a legitimate option the IRS even acknowledges--the paying with credit part, not the bankruptcy part.

The downside: With the IRS, you'll pay interest and penalties, but they won't approach the 15-25 percent interest some pay on their credit cards. You're way, way better off signing up for a payment plan if you're strapped.

Have you found more creative ways to pay your taxes? Let me know and I'll feature you!

Photo by Mat Honan.

Serenity Tip: Estimate your taxes

I did something this weekend that I've never done before:

I asked my accountant to estimate how much, if any, taxes I should expect to pay in April.

I've been paying my quarterly taxes faithfully, but since my income went up this year, I'm unclear if I may need to pay more come April.

This estimate is especially important right now, in the waning days of FY 2007. There's office equipment I want to buy. I have fantasies of new software, hardware and some fun things, like that flat-screen cinema display I don't really need but would be awful sweet to look at every day. And then there's the health necessities: ergonomic desk and chair. In other words, I could spend all the money I have saved or taxes and still want more.

For me to do this office equipment spending sanely, I need to avoid using a credit card. I know--fiscal blasphemy! How ever will I survive?!--Well, I'll tell you: I haven't used a credit card for more than a year now and I haven't had any calamities that have required plastic. So as I consider stocking my office with all the newest and greatest, I know that serenity will come from doing so in a sane, manageable way that doesn't increase my debt burden next year.

That's where my accountant comes in:

I send him my estimated income for the year. (Which I have, happily, because I've been working hard this year on maintaining clarity about every penny that comes in.)

I sent him my estimated spending for the year. (Actually, except for the spending I have yet to do at the end of this month, it's more like actual because I use a little Walgreens notebook to record my spending daily, personal and professional.)

And now I wait to find out: Should I save more? Is there money for office equipment? And if so, how much is available?

This is very exciting for me. In the past, I would have spent blindly and hoped that money would appear to cover it. I'd be scrimping and saving next year for this year's taxes, and then worry about being able to pay my quarterlies. I'm hopping off that merry-go-round.

Not trying to guess not only keeps me current with our friends at the IRS, but keeps me much, much more serene.