Planning determines your tax refund


As the end of the year approaches, your enjoyment of the holidays may be marred by your concern about taxes. This means you may be making life and taxes more difficult than need be.

You may be making two big mistakes, according to professionals. You turn to your accountant to get a big tax refund when, in fact, you determined the outcome of your tax months before. You wait until December to review your records instead of doing it all year.

If you believe your accountant did a great job because he or she obtained a sizable return, you simply don't understand a basic premise of taxes, says Martin M. Shenkman, a New York tax attorney.

"If you are entitled to a large tax refund, it's possible you should rethink your entire tax situation," advises Shenkman, a contributor to publications of Matthew Bender & Company, legal and tax publishers. "Better to pay a few hundred dollars to the Internal Revenue Service in April than to let the government keep and use your money, interest free, all year. A large refund probably means that more money is being withheld from your income than should be, not that you have a clever accountant. Consider changing the number of dependents you claim.

"While you may be conditioned for a large refund, you and your accountant should talk about restructuring your affairs so that you pay the least amount of tax that is legal -- throughout the year."

The size of your tax refund does not necessarily mean your accountant is doing a good job, he says. "It's how small your total tax bite is that counts."

When year-round record-keeping is slipshod, it is difficult for your accountant to prepare returns, file returns and produce evidence for an audit. Shenkman advises you to devise a system that conforms to your habits.

"Keeping tax records is just like going to a health club," he says. "Every January people resolve to go, but if they pick too rigorous a regimen, they quit by March. Financial record-keeping is similar. Records must be kept all year and not in a haphazard way -- like receipts thrown in a shoe box. For keeping records, find a system you will stick with."

Shenkman suggests:

* When you write a check, make a note in your check register about anything remotely connected to taxes, such as interest, donations, building improvements. Write all details in the check register. At the end of the year, you can whip through the listing instead of sorting receipts.

* Write down everything in detail in your appointment book. Each day make notes of any cash that is laid out for business, taxis, office supplies or the like.

* Staple your receipts into your appointment book on the page for the day the money was spent. Your appointment book is a great place to jot down where you drove, when and whom you saw. Almost all of it already is there!

Take the numbers from your checkbook and appointment book and add them on spreadsheets by category. You have almost every figure ready to plug into your tax form. This will save money, because it will take your accountant less time to prepare your return. Also, being organized usually leads to finding more deductions.

One thing is certain: If you keep records scrupulously all year round, you will eliminate the stress and fear of filing taxes and being audited. If you are audited, this system reduces the anxiety. Simply hand over your check registers, forms and appointment book, and you may be home free, says Shenkman.

That seems to be good reason enough to start doing it on the first day of 1991.

1990 Los Angeles Times Syndicate

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