By Kenneth W. Klingenberg
Klingenberg & Associates, P.C.

I generally receive a number of telephone calls from my clients and attorneys (who are not my clients) during the last two weeks of each calendar year.? These calls typically request end of the year tax planning ideas which I am happy to provide.? However, I have always believed that tax planning starts on the first day of the year and continues throughout the year.? The following beginning of the year tax planning ideas are ones that I believe are important and helpful to all my clients, including those who are attorneys.

1. Although this suggestion may seem out of place, complete and file your prior year?s tax return as soon as is reasonably possible.? We find our clients may have some feel for their prior year tax results and burdens, but there are also many times when the client is surprised by the amount of his end of the year tax liability.? An overpayment or underpayment may change your cash flow requirements for the current year.? It is best not to be surprised in the current year by a prior year?s tax liability.
2. Keep organized and accurate records starting with the first check you write and the first deposit you make in the year.? Good record keeping reduces tax return preparation costs and will help you keep track of your net income long before December arrives.? A good bookkeeping system does not have to be complex nor sophisticated, but it should provide an accurate net income number at any point during the year.
3. Do a better job of keeping track of your cash expenses.? Our office often receives receipts for cash expenses from clients with no description and no way of knowing if they are ordinary and necessary business expenses.? In addition, clients often tell us that they have deductible cash expenses, but they do not know the amount spent and are unable to substantiate those expenses.? This is a problem both for the tax preparer and the taxpayer if an audit occurs. ?The Internal Revenue Code plainly states it is the taxpayers obligation to substantiate all expenses whether paid by check or cash.? Whenever cash is spent at an office supply store, a restaurant or anywhere else, you should always retain the receipt.? I put the receipt in my pocket and later mark it appropriately.? I then put it in a folder and from time to time go through that folder to organize and classify those expenses.? On the receipt, you should include the date, amount, place, business purpose and, if it is a meal or entertainment expense, the name of the clients who were with you.
4. Never make an expenditure merely because it is ?tax deductible?.? It is vitally important that money is not spent solely on tax-deductibility.? The needs and cash flow requirements of the business should always factor into your spending decisions.? I am not saying that you should not obtain a special piece of electronic equipment or something that would make your life easier in the work you perform.? However, I am saying do not invest in any program and do not purchase any equipment that you truly do not need and will not use. Do not forget that one dollar spent does not equal one dollar in tax savings.
5. If you do not have a financial and tax background, telephone your tax preparer prior to entering into any business relationship, agreement, or purchase that is of an unusual nature for you.? I am not saying call your tax preparer before you make any expenditure.? However, if the expenditure or investment is unusual, there may be better ways to structure the arrangement that would be more beneficial to you.? It is our experience that when we receive that quick telephone call from our clients, many times the client gets the same economic result with better tax results.
6. Do not treat your bookkeeping process and tax preparation process like a step child.? We have found that many attorneys with whom we work ask a legal secretary or legal assistant within their firms to accumulate the bookkeeping information and prepare the bookkeeping records for tax preparation purposes.? Too many times the legal secretary or legal assistant has case matters that are put in front of maintaining and creating the appropriate tax records.? This is certainly understandable as attorneys are often facing strict deadlines.? However, you should create an atmosphere where the bookkeeping is processed in a timely manner and by a knowledgeable person.?
7. Be certain to pay your estimated tax payments and payroll tax payments timely.? Also file your payroll tax returns timely.? Filing and paying estimated taxes and payroll taxes will save you the costs of late filing and payment penalties along with additional interest.? These penalties are not tax deductible and can be substantial.? The interest expense may also not be deductible.
8. Tax advice is often given by family and friends who have absolutely no tax background or knowledge.? Many times this information is not correct.? Frequently this information is given out during a cocktail party and it has been our experience that cocktail party tax advice is never as good as the bubbly you are sipping at the time you get the advice.

There are many other beginning of the year tax planning ideas that could have been included.? However, in our experience those that I have included are useful and will be helpful to you as you conduct your business throughout the year.

Kenneth W. Klingenberg is an attorney and Certified Public Accountant. His practice focuses on business litigation, tax preparation, tax planning, tax litigation, probate, business planning, estate planning, and litigation support. He is with the firm of Klingenberg & Associates, P.C., 330 N.W. 13th Street, Oklahoma City, OK 73103, (405) 236-1985.