11 Things I Wish I Could Tell My Younger Self About Taxes

 Repost from forbes.com

  1. Don’t panic. Deadlines are important. Accuracy is important. But don’t let those things drive you crazy. When you can’t find your receipts as Tax Day creeps closer, the temptation is to go straight into meltdown mode. Don’t. Panicking doesn’t help and usually just makes it worse – that’s when you make bad decisions. Whenever you are tempted to panic because you owe a lot, you’ve missed a deadline (or many, many deadlines), you can’t find your tax records, whatever… slow down. Don’t ignore the problem (open your mail). Buy some extra time with an extension.Pay what you can. Get some help.
  2. Be kind. This, I learned from my mom. I’ve said before that I think it’s one of the best lessons you can learn – and the earlier, the better. It pays to be kind, not just to your family and friends, but to your financial advisors, your attorney and your tax professionals. They’re trying to help you, remember? And that IRS rep? The examining agent? The Revenue Officer? Just doing their jobs. Starting out on a bad note won’t help you and will likely just make things worse. Take a breath. Smile. It will get you further than you think.
  3. Don’t be too proud. Remember that scene in “Legally Blonde” when Brooke Taylor-Windham (played by Ali Larter) confides to Elle Wood (played by Reese Witherspoon) that she has a solid alibi to prove that she didn’t murder her husband – but she can’t tell anyone what it is? She was getting liposuction at the time and didn’t want to admit it in public because her image was based on the idea that she looked the way she looked because of her own hard work. In the end – because it’s a movie – everything worked out for Brooke but things would have been sooooo much easier if she hadn’t had been quite so proud. In real life, that’s also true. Don’t make life more difficult because you’re too proud – you want to be right, you don’t want to admit a mistake, you don’t want someone to know you’re having a tough time. Don’t beat yourself up. When you make a mistake, fix it. When you need help, ask. Don’t let your pride get in the way.
  4. Speak up. My first real legal job was in South Jersey, just across the bridge from my home in Philadelphia, Pennsylvania. I knew there was some kind of reciprocity between the two localities but I wasn’t quite sure how it worked. I didn’t want to ask. I wanted to be liked. I wanted to keep my job. I thought that payroll would figure it out. They didn’t. After my first year, I got a bill from the City of Philadelphia: they wanted their share. I had to file multiple returns to sort it all out, including filing a return for refund from withholding in New Jersey. In the second year, we got it straight but really, I should have asked earlier. I see this issue a lot nowadays from taxpayers – especially young taxpayers – who don’t want to make waves at work. Your employer has an obligation to make sure that you’re characterized appropriately (employee versus independent contractor) and that your withholding is proper. This doesn’t always mean that it will work out exactly the way that you want: not every jurisdiction has a reciprocity agreement and you’re not always an employee just because you want to be (sometimes, you’re just an independent contractor). But you won’t know until you ask.
  5. It’s okay to hire a professional. I don’t prepare my own tax returns. I used to do them – for my family and for my business – but as I got busy, I had to make tough choices like whether I should find time to do my own taxes or sleep. I went with sleep. And I hired a tax professional. But I had some serious guilt about it in the beginning because it felt like one of those things I should do myself. That was then. Now, I firmly believe that there’s no shame in hiring someone to help you out for whatever reason: it’s too hard, you don’t have time or you just don’t want to do it yourself. You don’t have to explain or make excuses. It’s okay to delegate (now commit that to memory).
  6. Don’t let tax tail wag the dog. As a tax attorney, I’m constantly thinking about tax consequences. I know what happens from a tax perspective when I donate to charity, pay my student loans or pony up for health insurance. It’s important to understand how your financial decisions factor into your tax picture. That doesn’t mean, however, that you should plan your life – or your big moments – around them. I’m often asked whether it makes tax sense to get married, buy a bigger house or change jobs. There was a time when that’s exactly where my head went first. But those are not the right questions. The first question should be “What does it mean to me if I do X?” And then you follow-up with “What are the tax consequences of X?” As I’ve gotten older, I’ve gotten far better about making personal and financial decisions while taking into account the tax consequences rather than allowing the tax consequences to control the decisions. So yes, sometimes I toss money into the Salvation Army kettle even though I know I won’t get a receipt (hence, no charitable deduction). And we decided not to buy a new house after we sold our old one. Not every action – especially those big life decisions like marriage and home buying – should be about what’s best from a tax perspective. Sometimes, it should be simply about what’s best for you.
  7. Planning is important. Don’t misunderstand: just because I don’t think you should plan your life around taxes doesn’t mean that I don’t think you shouldn’t plan. Tax planning is important. You should take advantage of tax strategies that can help you lower your tax bill, like seeking out tax credits you might have overlooked or making a contribution to a tax-deferred retirement account. And knowing what’s coming down the pike is also important when it comes to payment: having a good idea of what you might owe and making estimated payments will help you avoid writing a big check at the end (trust me) and possibly being subject to underpayment penalties.
  8. It’s only money. I know money is important. I work with money for a living. But you know that check I wrote this year? As ugly as it was to have to write out that check, it was only money. It’s taken me a while to put that kind of thing in perspective. As business owners, we’ve had some lean years, the kind that left me staring at the ceiling on a sleepless night. I have worried about paying for our employees and health care and taxes all while I struggled to pay off my student loans. I remember feeling panicked about how we were going to make the numbers work. And I’ve heard that same panic in the voices of my clients – the ones that can’t sleep because they’re terrified that they owe money to IRS or to the state. The ones that don’t open the mail or answer the phone because they’re petrified of collections. I get it. But last year was a tough year for our family. My father in law died. My mom was hospitalized. A good friend was diagnosed with stage 4 cancer. I had a health scare of my own. Those things? Those were the difficult things, the things I couldn’t control, the things that I couldn’t possibly plan away. The money part? You can figure that out.
  9. Paying your taxes over time isn’t the worst thing in the world. If you’re a regular reader of the blog, you know that several years ago, after the birth of our son, I decided it was time to let someone else handle our finances – and it didn’t end well. When I returned from maternity leave, I discovered the problem and scurried to correct it but the damage was done. We ended up with a large tax bill (luckily, no penalty) and the accountant handling our affairs ended up with an indictment. It was not a good situation. I stressed about the bill at first but then took my own advice:if you can’t pay your tax debt all at once, don’t buy into the whole “if I can’t pay it all, I shouldn’t even try” idea. Pay over time. You can help ward off liens, levies and wage garnishes by working something out with tax authorities. You can apply for an installment agreement with the IRS online – without even speaking to a real person – if you owe $50,000 or less in combined individual income tax, penalties and interest. There’s also nothing to stop you from sending in a check or two while you work to resolve your outstanding tax liabilities. Something is better than nothing. Also, it’s only money (see #8).
  10. There’s more than one right way to do things. I have my Masters in Tax Law. I like to think that means that I know a little something about tax. But that doesn’t mean that I know everything. Nobody does. Five different tax pros can tell you five different ways to solve a problem – and they might all be right. The reality is that our Tax Code is quite broad and there can be many different interpretations of the same problem. There’s no magic bullet, no clear answer, no one size fits all. So as much as you want hear that a potential solution is 100% guaranteed, it’s not. Tax law can be (and often is) subjective. Use good judgment. Hire a professional. And see #11.
  11. Next year is a new year. You’re going to file a lot of tax returns in your life. And not every one is going to be a cakewalk. Statistically, at some point, bad stuff is bound to happen. But here’s the good part: the tax year has an end. Barring certain charitable carry forwards and net operating losses, most tax triggers (good and bad) begin and end in the same year. As bad as something may seem in April, take heart: chances are, that’s the end of it. Next year is a new year.