Ah, the fourth quarter. In football parlance, it’s that time when teams on the winning side of the game fortify their defenses and protect their leads. And teams on the losing side often make desperate, risky plays to score, including long, seemingly impossible passes called “Hail Marys.”
In the business world, the fourth quarter is when tax-paying entities furiously work to bolster their bottom lines. And any “Hail Mary” strategies had best be left on the sidelines.
Importance of planning
If you think April 14or even Jan. 1is the time for tax planning, then you should expect to pay up like a gambler on the losing end of a Super Bowl bet. Tax planning is a yearlongyears long, actuallyprocess, beginning with consultations with your certified public accountant or tax adviser, and carrying on through the year with attention to expenses tallied and receipts gathered.
“Tax planning is paramount to any enterprise to avoid penalties, which are the scourge of all businesses,” says Jeffrey A. Schneider, a small business tax adviser with Schneider Financial Services (www.sfstaxacct.com) in Royal Palm Beach, Fla. “Millions of dollars are wasted by small businesses by not paying into the IRS the required amount in estimated taxes, or by waiting too long to plan their tax strategies. This is like throwing your money down the drain.” Or, heaving an errant Hail Mary.
These tips will help you prepare for tax time.
If you know that you’ve lost some receiptsfor tolls, meals, cash expenses, etc.reconstruct those expenses. Keep thorough notes in your calendar or digital assistant, detailing all travel. This will help spur your memoryregarding any expenses with-out receiptsand such substantiating documentation can help prove and justify your deductions.
You may work alone, but Uncle Sam is always by your side, hat in hand, come each quarter (or month, depending on your tax payment requirements). He must get his share on time or penalties and interest will be assessed. For that reason, I take a salary and pay my expenses. But before I go out and buy some great new laptop or ergonomic chair, I try to stash just enough money to cover my monthly tax bill. My trick is called “blind holdings.” I subtract from my running checkbook balance one-fourth of any client checks I deposit. This way, I know the money is there when tax day comes around each month.
Besides, the IRS will frown if you wait until April 15 to pay your tax billeven as a freelancer. Estimated tax payments and wage withholdings are expected throughout the year. Don’t delay, because you’ll pay more in penalties and interest. Schneider warns, “If you wait until tax return time to pay your tax, the IRS can assess substantial penalties.”
With a little planning, including a huddle with your trusted adviser, you can roll through the tax season like a team built to become a dynastyand not one constantly scrambling to make up lost ground. Along the way, you’ll be better prepared to focus on delivering quality product and creating new business, than wondering how you’re going to keep more of what you earned.
And that, football fans and freelancers, is how the game of tax planning is played.
This article appears in the December 2002 issue of Writer’s Digest.