The details of one man's quest to buy a Tesla, originally using passive income, but it didn't turn out that way.
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Wednesday, March 14, 2018
Tax Day!
Last week was tax day in our house. Not April 15, when taxes are due to be filed, but the day I set aside to gather all my tax-related paperwork and ship it off to my CPA.
Like always, I sat on the floor of the room we use for our home office and starting stacking papers in piles all around me. All W2s go in this pile by my left knee. All 1099 forms go the pile by my right knee. That pile over there is for receipts for charity donations. The pile my dog keeps walking over is for income from my hard money loans. That one under the desk is for gambling winnings and losses. The pile on the chair is for moving expenses.
I put a sticky note on top of each pile identifying what it contains and paperclip each group together. Once I’ve distributed all my paperwork to one pile or another, I sort the piles into an income-related group and a deduction-related group. I put a rubber band around each stack, then another rubber band around both stacks to keep them together and into a large mailing envelope they go, off to the CPA.
My CPA loves that I am so organized. I can’t help it. It’s the engineer in me.
This process could take a lot longer than it does, but I try to do as much as possible during the year. For example, we donate a lot of old clothes and other items to Goodwill. Before I drop them off, I make sure to document everything. I have a spreadsheet where I list each item donated and its value. I also take a picture of the items. (This may be overkill, but I figure if I’m going to get audited, I want as much proof of what I gave away as possible. This also helps document the condition of items in case there is a dispute over the value.) I then print out the spreadsheet and the photos, staple them to the receipt I get when I drop them off, and put that in a folder. When tax day comes, I just take the papers from that folder and hand them over. The work of assigning values and documentation was done throughout the year.
One drawback to having so many different accounts is that, come tax time, I have lots of different 1099 forms to collect. Nothing I can do about that, unfortunately.
In 2017, we had some significant moving expenses to deduct. We also sold our old house and bought a new one. That added to the paperwork this tax season. We also lived in 2 states during 2017. Luckily, Washington state does not have an income tax, so there won’t be any additional work for that, but my accountant will have to file a part time resident tax return for the time we lived in AZ. This will also be complicated because my wife and I moved out of the state at different times. It looks like our CPA will really be earning her fee this year!
The good news is that the recent tax law changes doubled the standard deduction, so it’s highly likely that next year we won’t need to itemize our taxes.
If you are itemizing this year, here’s one tip I used to always forget – you can deduct any taxes you pay when registering your vehicle. Your registration certificate should spell out exactly what portion of your fee was taxes.
Happy taxing!
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