By David L. Sefton, M.S., CPA
Many bird breeders become overwhelmed when thinking about their taxes. Bird breeders who don't file their bird business on their tax return simply view the entire process as too complicated. In previous columns, I have repeatedly reviewed the benefits of reporting your bird business on your tax return. The nuts and bolts of preparing your tax return warrant discussion as well.
All the receipts and records for a whole year usually seem like an unmanageable mess. However, as with most big problems, you need to break it down into little components. First, consider the major categories of expenses. For most bird breeders these will be as follows:
Medicines and vitamins
Marketing (booths at bird shows, etc)
Publications and books
Cash expenses (small expenses)
My suggestion is to buy a box of 10- by 12-inch envelopes. Take a big, black magic marker and write one of the above-listed titles on each envelope. Then set these envelopes out on the floor. Start going through your yearly receipts. Normally, most bird breeders have a huge pile of these receipts. That is part of what makes preparation of the information so difficult. Go through your receipts and canceled checks one by one, putting them into the appropriate envelope. Make sure you don't double count a receipt for which you have a canceled check. At the end of the day, all the receipts should be in their different envelopes. If you have a category that has numerous receipts that are not in the list above, then you can put that expense title on an envelope and put it out on the floor with the rest. The main object is not to have too many envelopes, but still cover the various expenses of your bird business. If you don't know where an expense should go, I suggest you put it in the "office" envelope. I frequently use the "office" category as a catchall.
After all of your receipts and canceled checks are segregated, take each envelope and run an adding machine tape of all the receipts and canceled checks it. Keep adding up the expenses over and over until you get two adding machine tapes that total to the same amount. Take both of these tapes with the same totals, and staple the tapes to the pile of receipts. Remember, you are adding each envelope separately, and the others should not be opened until you are finished with the current set of expenses. After you have stapled the receipts, write the total of those expenses on the outside of the envelope and place the receipts and checks back into the envelope. This way, your expenses are organized and kept together.
When you have finished your addition of expenses, each envelope should have the total of the expenses from that category in big print on the outside of the envelope. Each envelope should contain a stack of receipts and canceled checks, with two adding machine tapes all stapled together in one big bundle. The number (total) on the adding machine tape should be the same that is on the outside of the envelope.
The end result is that you have taken roughly a thousand or more receipts and organized them quickly and efficiently into their tax categories. This information can then be easily summarized. You will be giving your accountant or tax preparer the summary list of the 15 or so different expenses and dollar amount of each expense (this number comes from the total expenses listed on the outside of each large envelope). He or she will then, hopefully, know where to put the information on Schedule F of your Form 1040.
Don't forget to calculate the mileage you have traveled during the year. Ifyou put a great deal of mileage on your car, it is generally better to take the standard mileage deduction. However, a discussion of how to account for mileage is outside the scope of this article.
Breaking expenses down in a simple organization system saves you aggravation and hassle. It might not make your taxes fun, but it certainly makes it more fun than it would be otherwise.