15 February 2006
You have sixty days until Tax Day (U.S.)
I have two months to finish preparing my taxes. I know a lot of people out there who much prefer working with tax accountants and advisors, but I much prefer doing the work myself. All year long I throw anything related to my financial condition in a big red crate. Every year, usually in mid-February, I upend that crate and start putting everything into piles. After three days of labor, those piles of papers have been sorted, organized, reviewed, mined for valuable data, calculated, recalculated, tabulated, recorded, and sent in one big envelope each to the Internal Revenue Service and the Commonwealth of Massachusetts.
Three days, yeah. You probably think I'm crazy.
Here's why I go through that, without an accountant. First of all, the three days that I spend sorting and tracking has to be done--by someone at some time--before Tax Day. I could do a little bit of that work every day using software like Microsoft Money or a spreadsheet, or even using a pencil and a ledger. Alternatively I could create folders for myself and sort the paperwork as it arrives, exchanging that one big red crate for two dozen hanging file folders. And if I wanted, I could instead bring that big crate to the nice accountants and say, "Add this for me," and not worry about it all. But because it has to be done, and because I'm much more qualified to know when a certain phone call is a business expense, when a certain receipt is a medical expense, or when a piece of paper fell into the crate by mistake, the person who should be doing most of that adding is, of course, me. And since it really is just addition, why should I pay an accountant when I am fully capable of using a calculator on my own?
Second, the one arena where the ability of accountants completely overshadows my own is in their understanding of tax law, and how those laws apply to my earnings, debts, and expenses. But I don't like not knowing about the laws that affect me. With the same curiosity I feel about who in the world might have my social security number, I want to know how much of money is going to fund my government. Going through the distress of all that mathematics pays off, because now I understand my how Social Security payments are calculated, where the tax tables were derived, and how much of my money was actually spent on medical expenses, mortgage payments, and investment fees.
And there's a corollary to all this, and it's a consequence of waiting until mid-February to look at this paperwork: Doing my taxes is when I figure out exactly how much I make! Sure I watch my checkbook balance go up and down, but I don't waste my time looking at those numbers on a daily, weekly, or even monthly basis. Once a year is good enough for me. February is therefore a big day of numerical realization. For example, this year I discovered that 40% of my gross indexing income came from a single client. Other discoveries include how much less interest I'm paying on my mortgage from last year; how much money I invested on the house (which is important because I work at home and can deduct some of it as an expense); how much money I spent on postage and shipping; how often I used my car for business; and all the other little things like phone bills, photocopying, client and colleague lunches, medical expenses, bank interest, retirement investment, and so on. If ever I needed a reality check, this is it, and it's a lesson on a global scale. It's one thing to see how much money I spent on business travel, but quite another to see that number next to how much money I spent on business advertising.
Not only do I learn about the tax-related information, however, but I really learn about everything related to money. Once a year I thoroughly read my credit card statements, line by line. Under the pretense of looking for those $4.95/mo payments for website hosting at tripod.com, I have the delicious opportunity to reminisce about each year's events, like the birth of my daughter, that vacation with my wife, the day I bought TiVo, the huge party catered by Blue Ribbon Barbecue, etc.
And finally, if ever there's a reason to say "Yes, I do my own taxes," it's to impress everyone! It takes them a moment to cough and gasp with incredulity, and to tell me that I'm insane not to have an accountant because they and everyone they know has an accountant, but then the light dawns. "Wow," they think, "this guy must really ____."
a) be smart?
b) have a lot of patience?
c) enjoy building character?
Fill in your own blanks. That's what I do.
Three days, yeah. You probably think I'm crazy.
Here's why I go through that, without an accountant. First of all, the three days that I spend sorting and tracking has to be done--by someone at some time--before Tax Day. I could do a little bit of that work every day using software like Microsoft Money or a spreadsheet, or even using a pencil and a ledger. Alternatively I could create folders for myself and sort the paperwork as it arrives, exchanging that one big red crate for two dozen hanging file folders. And if I wanted, I could instead bring that big crate to the nice accountants and say, "Add this for me," and not worry about it all. But because it has to be done, and because I'm much more qualified to know when a certain phone call is a business expense, when a certain receipt is a medical expense, or when a piece of paper fell into the crate by mistake, the person who should be doing most of that adding is, of course, me. And since it really is just addition, why should I pay an accountant when I am fully capable of using a calculator on my own?
Second, the one arena where the ability of accountants completely overshadows my own is in their understanding of tax law, and how those laws apply to my earnings, debts, and expenses. But I don't like not knowing about the laws that affect me. With the same curiosity I feel about who in the world might have my social security number, I want to know how much of money is going to fund my government. Going through the distress of all that mathematics pays off, because now I understand my how Social Security payments are calculated, where the tax tables were derived, and how much of my money was actually spent on medical expenses, mortgage payments, and investment fees.
And there's a corollary to all this, and it's a consequence of waiting until mid-February to look at this paperwork: Doing my taxes is when I figure out exactly how much I make! Sure I watch my checkbook balance go up and down, but I don't waste my time looking at those numbers on a daily, weekly, or even monthly basis. Once a year is good enough for me. February is therefore a big day of numerical realization. For example, this year I discovered that 40% of my gross indexing income came from a single client. Other discoveries include how much less interest I'm paying on my mortgage from last year; how much money I invested on the house (which is important because I work at home and can deduct some of it as an expense); how much money I spent on postage and shipping; how often I used my car for business; and all the other little things like phone bills, photocopying, client and colleague lunches, medical expenses, bank interest, retirement investment, and so on. If ever I needed a reality check, this is it, and it's a lesson on a global scale. It's one thing to see how much money I spent on business travel, but quite another to see that number next to how much money I spent on business advertising.
Not only do I learn about the tax-related information, however, but I really learn about everything related to money. Once a year I thoroughly read my credit card statements, line by line. Under the pretense of looking for those $4.95/mo payments for website hosting at tripod.com, I have the delicious opportunity to reminisce about each year's events, like the birth of my daughter, that vacation with my wife, the day I bought TiVo, the huge party catered by Blue Ribbon Barbecue, etc.
And finally, if ever there's a reason to say "Yes, I do my own taxes," it's to impress everyone! It takes them a moment to cough and gasp with incredulity, and to tell me that I'm insane not to have an accountant because they and everyone they know has an accountant, but then the light dawns. "Wow," they think, "this guy must really ____."
a) be smart?
b) have a lot of patience?
c) enjoy building character?
Fill in your own blanks. That's what I do.
