My kids are on spring break this week which means we are spending a lot of time together. A lot.
In the space of a few days, I've learned some invaluable information. The best car ever made? An Audi R8, according to my six year old. A love of coleslaw? Not hereditary (I’m still reeling from this one). Can you listen to the same Taylor Swift song too many times? The answer, from both girls, a resounding no.
It’s been interesting, to say the least. But tonight, as I settled down in the armchair in my parent’s living room, reliving the past couple of days in my mind, I realized a few things. Grown-ups make things hard. We complicate issues. Sometimes, the answers really are easy. And with that in mind, I give you nine things I've learned from my kids about tax:
- It’s okay to change your direction. More than once. As adults, we’re kind of programmed to go in one direction. And we’ll keep heading in that direction even when it’s clear that it’s the wrong direction. We think turning around is admitting defeat. But it’s not. Sometimes, changing direction means that you've figured out a better way to get where you’re going. You have to be ready to make that change. When it’s clear that you’re not going to be successful, for example, in an Offer In Compromise, it might be time to change direction and try an Installment Agreement. If you’re not getting anywhere with your efforts to challenge a potential change in your return with IRS, maybe it’s time to file a petition in Tax Court. There may be more than one way to get where you need to go, be open to changing directions.
- Don’t cheat. My eight year old has this amazing third grade teacher. Her teacher has devised a classroom economy where the kids earn income for doing jobs and pay penalties for making mistakes. One day, she came home with eyes wide. “Mom,” she said, “This girl had to pay $50 today as a penalty.” That’s a pretty hefty fee. So I asked why. “Because she forgot to have her parents sign her homework journal.” I made a face. That wasn't a $50 penalty kind of thing. “So,” she continued, “she signed her dad’s name instead.” And that’s what got her into trouble. It was an excellent lesson. The same lesson can be applied to IRS. You rarely get into trouble for the little mistakes. Those can be fixed. You get into trouble for lying and cheating. So don’t do it.
- Don’t be afraid of the bigger guy. My six year old started non-contact rugby this winter. Most of the kids in the league were at least a few years older and much, much bigger. On the first day, he cried because he couldn't figure out the drills. They required a level of finesse that his little six year old body couldn't master. But he dusted himself off after a crying jag, he squared his shoulders and he paid attention to the coach. And then he played his little heart out. A few games in, he got a collective cheer from all of the big guys when he made a spectacular play against a guy nearly twice his size. He didn't back down. But he was also smart: he figured out what he could master. In tax, you often have a similar match up: you against the big guy. The IRS (and other taxing authorities) can be really intimidating. And while it’s foolish to fight for the sake of fighting, it’s smart to challenge an assessment or finding that’s clearly wrong. When it makes sense to fight back, don’t be afraid to do so. But be prepared: that’s half the battle.
- Pay attention to deadlines. Tuesday is soft pretzel day at school. That means that the kids need to remember to bring change if they want to buy a snack. Their recall of this is much better than mine. They understand that if they forget, that means no pretzel on Tuesday. And they don’t sell pretzels on Wednesday. Deadlines matter. And they matter in tax. You have to be aware of key dates – like petition deadlines, tax due dates and time frames for claiming refunds. You don’t always get a second chance.
- When you have an empty box, you can turn it into a time machine. Or a collection box. Or a puppet theatre. For the most part, the IRS likes to see the right item placed neatly on the right line on your tax return. But sometimes, you have choices that affect your bottom line. Should you figure your tuition as a deduction or a credit? Run the numbers and see. And if you can’t make something work one way, try it another way. You might not be able to claim that Little League sponsorship as a charitable deduction for your business, for example, but it might fly as a promotional expense. Think outside of the tax box.
- Be realistic but manage expectations. My middle daughter had long, beautiful blonde hair. It was also terribly fine and kept getting tangled. It needed to be cut. We looked at a bunch of pictures and she finally settled on this one: Emma Watson’s pixie cut. At the salon, I began to panic a bit. What if, when the cut was done, she hated it? What if if was too severe a cut for her? I gently suggested that maybe she could get one a little bit longer and if she liked that one, cut it even shorter later. She looked at me funny and said, “Mom, it’s just hair. It will grow back.” She was totally right. Sometimes we get so caught up in all of the worst case scenarios that we don’t see the bigger picture. Don’t be so scared that you fail to get what you want. If you can document those moving expenses, take them. If you qualify for the home office deduction, by all means, do it. Don’t get so caught up in the fear of audits that you don’t take the credits and deductions that you are entitled to claim. If you understand the consequences of your actions – and it still makes sense – then go for it. (For the record: totally adorable cut, we both loved it.)
- Read everything. My ten year old never met a book she didn't like. Or newspaper. Or cereal box. And whenever she wants to know something, she reads even more. Her latest obsession is raising chickens. She desperately wants a whole coop full. So she’s read every book and magazine she can get her hands on about chickens, coops, eggs and feed. Even though she hasn't set foot inside a barn, she’s practically an expert. When the time comes, we’ll likely depend on folks who know more than she does (or we do) to make the tough choices – what kind of chickens to get, what kind of coop to have and the like. But she knows enough to make educated decisions with their guidance. You should think about your tax returns the same way. You might want to do your own returns. You might want to hire someone to do your returns. Either way, you should know enough about the tax law that applies to your situation to make smart decisions. Read newsletters, magazines (like, oh, say, Forbes) and blogs to keep you informed.
- Stop the bleeding early. My kids ask for band-aids at the drop of a hat. A scratch or a scrape or an all-out gash: they all get the same treatment. But they may be onto something. As grown-ups, we tend to wait until things get really terrible before we ask for help. By then, it might be too late. Getting help early can keep a bad situation from turning worse. Those lost receipts? That information request from IRS? That credit that you weren't quite 100% about? Open the mail. Ask questions. And don’t wait until the last minute.
- If you don’t know the answer, ask Grandpa. Or someone in the know. My six year old explained to me the other way that we could ask “Grandpa because he knows everything.” Having grown up with his Grandpa, I’m not so sure that’s true. (Quick, Dad! Who is Justin Bieber? Point proven.) But my son is on the right track. When you don’t know the answer, ask someone who does. That could be a phone call to IRS (1.800.829.1040). Or an email to your tax professional. But the key is to not be afraid to ask for help. Someone will know the answer.
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