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Tuesday, March 4, 2008

* Ready or Not, Here He Comes!

In the U.S., public companies have 60 days from the end of their fiscal year to file form 10-K with the Securities and Exchange Commission (SEC). For companies on a calendar year, day 60 was Friday February 29th - the day we filed my employer's 10-K. My staff and I celebrated with a small party Friday afternoon. Since this was the first weekend off in 2008 for most of my department, I threw in Monday as a free-day they could take off. I took it also.


So what did I do on my first long weekend of the year. I must say none of it involved fun or pleasure. I mowed the weeds and put out pre-emergent, albeit a little late and generally caught up on several 'honey-dos' that have been accumulating. I didn't mind any of this. It was good to see the family again. But then Monday came, a beautiful day in the low 70's with low humidity (this doesn't happen much in the south). It was perfect weather to get out and enjoy the day, but unfortunately I had to begin working on that which haunts me. Like a gremlin in the night 'The Tax Man Cometh' on April 15th (U.S.) whether we are ready or not.

It's not that I mind paying my fair share (my opinion on what's my 'fair share' could be an entire article/series, so I won't go there), but I detest having to gather the information and calculate the inputs. I have never been this far behind.

As I have mentioned before, I am an accountant. Most people wrongly assume all accountants are into taxes. That would be like assuming your proctologist could help you with a sore throat (I hope you washed that before you stuck it in my mouth). This accountant is not into taxes.

My friends tell me to hire someone to prepare my taxes. Entering the information into Turbo Tax is not the difficult part. Calculating the inputs is what is nasty. If I hired someone, they would be looking for the same inputs. Here are some of the things I am working with:
  • A 14-page 1099 from Scottrade: Page 1 (1099-DIV) breaks dividends into 13 boxes (ordinary, qualified, capital gain distributions, section 1250, section 1202, 28% rate, nondividend distributions, tax withheld, investment expenses, foreign tax paid, et. al.) Since I invest in REITs, I have numbers in most of these boxes. Other than nondividend distributions, this is really not bad.
  • Nondividend distributions: If it looks like a dividend, walks like a dividend and quacks like a dividend, be careful - it could be a return of capital. The good news is these are not currently taxed as ordinary income, but are treated a reduction in your basis and are taxed as a capital gain when you sell the security. The bad news is you have to go back and adjust every dividend you entered into your portfolio software and adjust your basis. I have over a page of these this year.
  • A 4-page K-1: For those not familiar with K-1's, they are issued by Master Limited Partnerships (MLP), who are not taxed. In effect the K-1 is your portion of the tax form the MLP would have filed if it was taxable. You incorporate every line into your tax form. You are also responsible for filing a tax form in every state that the MLP does business. Not to worry it comes with a 15 page instruction booklet. For tax reasons, I will never knowingly buy a MLP. Periodically, I will not do all my homework and accidentally buy one. To make matters worse, I usually don't discover it is a MLP until the 1099 arrives in January, so it becomes a two year process of getting rid of it.
  • All the normal W-2's, various 1099's, contribution receipts, etc.: After dealing with the above these seem like a piece of cake.
I probably have another couple of full-days before the the taxes are complete.

"No dear, I am still working on my taxes. I am not 'playing' on my blog."

Oops, gotta go.

How do feel about your taxes?


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