Ready for Tax Time:
A short guide for coaches and other self-employed professionals

by Viveca Monahan, CPC ACG

It’s that time of year again -- time when we must search through our records, planners, notes, and memories for the data we need to file those income tax returns. For many people this is a high-anxiety activity. Your files may be scattered. Maybe you didn’t keep the best records of your income and expenses. Maybe you kept great records, but didn’t pay the appropriate estimated taxes during the year. Maybe you’ve done everything right, but you still feel the stress.

I believe that most of our anxieties come from one or a mixture of the following: the confusing mass of paperwork details, the uncertainty about tax laws, and the fear of owing money to the government. We’ll address each stressor and then provide a simple file system you can start today for pulling together your records for filing your 2006 tax returns. This system assumes that you will hire a professional to answer questions regarding your personal tax situation and to actually complete the preparation of your tax return.

Paperwork details

Self-employed people are required to maintain records of all the business income as well as all the expenses incurred for that business. The cleanest way to do this is to have, for just your business, a separate bank account , into which you deposit all your business income and from which you pay your business expenses. It is also a good idea to have a separate credit or debit card dedicated to the business.

Keep the receipts for each expense, even those expenses you pay by check or credit card.

Whenever you buy machinery, equipment or tools for your business (things that last more than a year like computers, printers, fax machines), you must keep separate records because these items are treated differently from ordinary expenses on your tax return.

Set up a special file into which you put only those receipts.

If you are working from your home and intending to take a home office deduction, keep a separate file with copies of all your home expenses such as the mortgage statement, all utility bills, including cable and any other household bills like repairs and maintenance to the house, cleaning service, homeowner's insurance.

Tax Laws

The complete Internal Revenue Code is more than 24 megabytes in length and would fill more than 7500 letter-size single spaced pages. Lawmakers fiddle with it every year. I spent 20 years as a tax professional and spent many a summer reading passages from the U.S. Master Tax Guide before napping at the beach. The life, eh? My best advice is to pick up a copy of J.K. Lasser’s Your Income Tax.(my favorite for years), or go straight to www.irs.gov for up-to-date information. On line and for free you can access IRS publication 17 which includes all the tax information you need – arranged thoughtfully with easy tabs for researching your questions.

If you are self-employed and don’t love the law, I would seriously consider leaving the actual preparation and filing of your tax return to a paid professional. There are a lot of advantages to owning a small business, as well a some caveats. Be sure to get your advice from a licensed tax professional who specializes in preparing tax returns for small businesses and who is current with the laws.

A Certified Public Accountant (CPA) or an Enrolled Agent (EA) are both licensed and held to high professional standards. Rigorous testing and annual continuing education is required. Licensed directly by the IRS, Enrolled Agents have passed a 3-part examination and a background check. Visit the National Association of Enrolled Agents (NAEA) for more information about their education and where to find one.

Owing Money

The US is a pay-as-you-go tax system. That’s why employers withhold money from wages. (They don’t just get to keep it until spring. They have to pay the government throughout the year.)

Self-employed people are required to pay estimated amounts in installments during the year. The amount of these estimates is calculated from your business’s projected net income. Just like the withholding of employers, if you overestimate your taxes, you will receive a refund. If you underestimate, you will owe the difference, including possible interest and penalties.

If you think you might owe taxes, you will want to find out sooner rather than later. Putting it off will add interest and penalties to the total. If you owe money and can’t pay all at once, you can apply for an installment agreement.

Steps to Getting Ready for Your Tax Accountant

Get a file box and fill it with 11 file folders or large envelopes. Label the folders:

Income Documents: File supporting documentation of non-business income ( W-2s, 1099s, jury duty pay, unemployment, social security, retirement distributions, alimony, gambling winnings, brokerage and investment statements…)
Business Records: These include summaries of your business income and expenses; receipts, invoices, check register, State and City business tax returns, auto log and planner pages
Home Office Documents: Include copies of bills pertaining to your home including all utility bills, cable company, telephone, internet, cleaning, maintenance, repairs, landscaping, mortgage interest, taxes, and insurance plus any furniture, fixtures and supplies you purchased exclusively for use in your home office. Include a copy of your annual real estate tax assessor’s statement which will indicate what portion of your property is depreciable for home office purposes (the dwelling is depreciable, not the land)
Other Tax Documents: Include in this section a summary of moving expenses, educational expenses for you and your family, child-care expenses or adult-daycare, IRA contributions, student loan interest
Medical and Dental Expense records including health insurance paid
Taxes paid including real estate, personal property, auto excise, sales tax (deductible if you don’t deduct state income tax)
Interest Expense from your home mortgage and other investments
Contributions fall into two categories:

Cash donated to 501(c)3 non profit organizations like a church, United Way, Scouts, Heart Association, etc
Non Cash donations to Goodwill, Salvation Army, for example. Note: The IRS has created more stringent rules about what can be deducted as charitable contributions. See Pub. 17 or ask your tax professional.
Also Note: Mileage for volunteer activities is 14 cents a mile.

Miscellaneous Deductions include last year’s tax preparation fees, job-related expenses (union dues, job education, uniforms) loss of property due to casualty or theft, or gambling losses
Copy of 2005 Tax Return
Notes, Questions and Summaries: Use this file to collect information that doesn't fit in any of the others. Store your research, questions, summaries etc. You can also use this to store any special forms and correspondence you received from your accountant or from the government.

Gather your financial records and sort them into the files. Keep a special basket near where you sort your mail into which all new tax forms can go until you are ready to incorporate them into your folders. W-2s, 1099s, and other important tax filing documents will be arriving all through January and February.

Summarize and total the information for each of the files. Staple that page into the folder. The more you can do this in advance, the easier (and cheaper) it will be for you when you bring your organized files to your accountant.

Schedule your appointment early. Some accountants offer a reduced fee for early birds. Most accountants will put you on extension if you wait until April 1 to make the appointment.

Start now to keep good records for the 2007 tax year. At the very least you want to keep a box or drawer dedicated to anything related to taxes. When it’s time to pull together your return next year, at least it will all be in one place. Ideally, though, you will create your file system from the outset. That way you will have a place to put any new documents that might be needed for next year’s filing.

It is true with income tax readiness, as with most life events: knowledge is power. The more you know and understand about your own situation and the laws that affect you, the more control you have over your financial life.

Just the tips

Set aside an hour or two just to read up on what’s new for individual taxpayers. Check here.
Read up on rules for the self-employed available from the IRS here.
Pick up an easy to read copy of JK Lasser’s Your Income Tax.
Set up your files. Ask for friendly support from a family member or friend while you gather and sort.
Schedule your appointment even if you’re not ready. The deadline will provide the motivation to get ready.
Finally, plan how you will celebrate once you’ve completed your work. Ideally, your celebration might be a trip or theater tickets or other event that has a date attached to it. You can complete your tax work knowing that the deadline you are working toward has a guaranteed happy ending.

About the author:
Viveca Monahan is a certified Life Coach living and working in Seattle, WA. She has been a practicing coach since 2000. In her former life she was an Enrolled Agent and tax accountant, licensed to practice before the Internal Revenue Service. Viveca specializes in working with professional women who live with the challenges and rewards of having AD/HD. www.coachviv.com

ACO Home Member LogIn Join Us Contact ACO Circle Home 2008 Archives 2006 Archives 2007 Archives Writer’s Guidelines Subscribe/ Unsubscribe	Ready for Tax Time: A short guide for coaches and other self-employed professionals by Viveca Monahan, CPC ACG It’s that time of year again -- time when we must search through our records, planners, notes, and memories for the data we need to file those income tax returns. For many people this is a high-anxiety activity. Your files may be scattered. Maybe you didn’t keep the best records of your income and expenses. Maybe you kept great records, but didn’t pay the appropriate estimated taxes during the year. Maybe you’ve done everything right, but you still feel the stress. I believe that most of our anxieties come from one or a mixture of the following: the confusing mass of paperwork details, the uncertainty about tax laws, and the fear of owing money to the government. We’ll address each stressor and then provide a simple file system you can start today for pulling together your records for filing your 2006 tax returns. This system assumes that you will hire a professional to answer questions regarding your personal tax situation and to actually complete the preparation of your tax return. Paperwork details Self-employed people are required to maintain records of all the business income as well as all the expenses incurred for that business. The cleanest way to do this is to have, for just your business, a separate bank account , into which you deposit all your business income and from which you pay your business expenses. It is also a good idea to have a separate credit or debit card dedicated to the business. Keep the receipts for each expense, even those expenses you pay by check or credit card. Whenever you buy machinery, equipment or tools for your business (things that last more than a year like computers, printers, fax machines), you must keep separate records because these items are treated differently from ordinary expenses on your tax return. Set up a special file into which you put only those receipts. If you are working from your home and intending to take a home office deduction, keep a separate file with copies of all your home expenses such as the mortgage statement, all utility bills, including cable and any other household bills like repairs and maintenance to the house, cleaning service, homeowner's insurance. Tax Laws The complete Internal Revenue Code is more than 24 megabytes in length and would fill more than 7500 letter-size single spaced pages. Lawmakers fiddle with it every year. I spent 20 years as a tax professional and spent many a summer reading passages from the U.S. Master Tax Guide before napping at the beach. The life, eh? My best advice is to pick up a copy of J.K. Lasser’s Your Income Tax.(my favorite for years), or go straight to www.irs.gov for up-to-date information. On line and for free you can access IRS publication 17 which includes all the tax information you need – arranged thoughtfully with easy tabs for researching your questions. If you are self-employed and don’t love the law, I would seriously consider leaving the actual preparation and filing of your tax return to a paid professional. There are a lot of advantages to owning a small business, as well a some caveats. Be sure to get your advice from a licensed tax professional who specializes in preparing tax returns for small businesses and who is current with the laws. A Certified Public Accountant (CPA) or an Enrolled Agent (EA) are both licensed and held to high professional standards. Rigorous testing and annual continuing education is required. Licensed directly by the IRS, Enrolled Agents have passed a 3-part examination and a background check. Visit the National Association of Enrolled Agents (NAEA) for more information about their education and where to find one. Owing Money The US is a pay-as-you-go tax system. That’s why employers withhold money from wages. (They don’t just get to keep it until spring. They have to pay the government throughout the year.) Self-employed people are required to pay estimated amounts in installments during the year. The amount of these estimates is calculated from your business’s projected net income. Just like the withholding of employers, if you overestimate your taxes, you will receive a refund. If you underestimate, you will owe the difference, including possible interest and penalties. If you think you might owe taxes, you will want to find out sooner rather than later. Putting it off will add interest and penalties to the total. If you owe money and can’t pay all at once, you can apply for an installment agreement. Steps to Getting Ready for Your Tax Accountant Get a file box and fill it with 11 file folders or large envelopes. Label the folders: Income Documents: File supporting documentation of non-business income ( W-2s, 1099s, jury duty pay, unemployment, social security, retirement distributions, alimony, gambling winnings, brokerage and investment statements…) Business Records: These include summaries of your business income and expenses; receipts, invoices, check register, State and City business tax returns, auto log and planner pages Home Office Documents: Include copies of bills pertaining to your home including all utility bills, cable company, telephone, internet, cleaning, maintenance, repairs, landscaping, mortgage interest, taxes, and insurance plus any furniture, fixtures and supplies you purchased exclusively for use in your home office. Include a copy of your annual real estate tax assessor’s statement which will indicate what portion of your property is depreciable for home office purposes (the dwelling is depreciable, not the land) Other Tax Documents: Include in this section a summary of moving expenses, educational expenses for you and your family, child-care expenses or adult-daycare, IRA contributions, student loan interest Medical and Dental Expense records including health insurance paid Taxes paid including real estate, personal property, auto excise, sales tax (deductible if you don’t deduct state income tax) Interest Expense from your home mortgage and other investments Contributions fall into two categories: Cash donated to 501(c)3 non profit organizations like a church, United Way, Scouts, Heart Association, etc Non Cash donations to Goodwill, Salvation Army, for example. Note: The IRS has created more stringent rules about what can be deducted as charitable contributions. See Pub. 17 or ask your tax professional. Also Note: Mileage for volunteer activities is 14 cents a mile. Miscellaneous Deductions include last year’s tax preparation fees, job-related expenses (union dues, job education, uniforms) loss of property due to casualty or theft, or gambling losses Copy of 2005 Tax Return Notes, Questions and Summaries: Use this file to collect information that doesn't fit in any of the others. Store your research, questions, summaries etc. You can also use this to store any special forms and correspondence you received from your accountant or from the government. Gather your financial records and sort them into the files. Keep a special basket near where you sort your mail into which all new tax forms can go until you are ready to incorporate them into your folders. W-2s, 1099s, and other important tax filing documents will be arriving all through January and February. Summarize and total the information for each of the files. Staple that page into the folder. The more you can do this in advance, the easier (and cheaper) it will be for you when you bring your organized files to your accountant. Schedule your appointment early. Some accountants offer a reduced fee for early birds. Most accountants will put you on extension if you wait until April 1 to make the appointment. Start now to keep good records for the 2007 tax year. At the very least you want to keep a box or drawer dedicated to anything related to taxes. When it’s time to pull together your return next year, at least it will all be in one place. Ideally, though, you will create your file system from the outset. That way you will have a place to put any new documents that might be needed for next year’s filing. It is true with income tax readiness, as with most life events: knowledge is power. The more you know and understand about your own situation and the laws that affect you, the more control you have over your financial life. Just the tips Set aside an hour or two just to read up on what’s new for individual taxpayers. Check here. Read up on rules for the self-employed available from the IRS here. Pick up an easy to read copy of JK Lasser’s Your Income Tax. Set up your files. Ask for friendly support from a family member or friend while you gather and sort. Schedule your appointment even if you’re not ready. The deadline will provide the motivation to get ready. Finally, plan how you will celebrate once you’ve completed your work. Ideally, your celebration might be a trip or theater tickets or other event that has a date attached to it. You can complete your tax work knowing that the deadline you are working toward has a guaranteed happy ending. *About the author:* Viveca Monahan is a certified Life Coach living and working in Seattle, WA. She has been a practicing coach since 2000. In her former life she was an Enrolled Agent and tax accountant, licensed to practice before the Internal Revenue Service. Viveca specializes in working with professional women who live with the challenges and rewards of having AD/HD. www.coachviv.com
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Ready for Tax Time: A short guide for coaches and other self-employed professionals