Posted Jul 13, 2004 07:36 pm CDT
Turai, a New Jersey tax lawyer and certified public accountant, appreciates that most lawyers are not numbers people—especially since he sees many of them every year at tax time, humbly pleading for his help. “They’re distracted with running a practice and satisfying clients, so taxes are something they think about once a year, or once a quarter if they do estimated [taxes],” says Turai.
The cause of many client headaches, he says, is sloppy or inadequate record keeping. This can cause myriad problems, especially when it comes to tabulating payroll taxes.
Small-firm lawyer Vicki Levy Eskin has experienced the payroll headache firsthand. Eskin has 11 full- and part-time employees at her firm in Lake Mary, Fla., outside Orlando. She didn’t think payroll would be that big a deal when she started six years ago, and she was reluctant to pay someone else to handle any part of her firm’s finances.
“I tried to do it myself and sometimes botched it up. I had others do it and they botched it up,” says Eskin.
Finally, she swallowed hard and hired a payroll firm to handle the job. She also hired an accounting firm to help her keep track of her cash flow—not just at tax time but all year. She admits that the services don’t come cheap, but, she says, they are the best investment she’s ever made in the administrative end of her firm.
“Now, I can bill time while they handle all that stuff. They do the withholdings and they even issue the W-2s every year,” says Eskin.
Eskin likes the idea that the payroll and accounting firms act as a sort of check on each other’s work and that both work with her internal bookkeeper to keep her financial records in order. The accountant even lets her know when it’s time to write off nonperforming accounts to best take advantage of tax savings.
Turai agrees that lawyers who hate accounting are better off hiring someone and sticking to what they do best: practicing law. He suggests checking with the bank to see if it has an arrangement for discounted payroll services for business customers.
The benefits of good record-keeping practices extend beyond payroll, Turai says. He counsels his clients to save all receipts from the regular expenses of the firm in a given tax year in a large accordion file. He suggests adding a note on each receipt with the reason for the expense or a few key details. Don’t worry about whether something is deductible, he says—let the accountant figure that out later.
If you don’t have a receipt, simply write the name, date, purpose and amount on a piece of paper and slip it in the file as soon as you return to the office.
Contrary to popular belief, says Turai, the Internal Revenue Service doesn’t require a receipt; only a written notation of the expense is needed.
In a separate accordion file, store receipts for major purchases for which you will take a depreciation deduction, such as computers and copy machines, he says.
If you take a business loan or access a line of credit, be sure to keep the deposit slip when you put the proceeds in your business bank account. Make a notation on the slip that the money was not income and put it in the file.
The bottom line, says Turai, is simply to keep track of your cash flow to maximize your deductions and minimize the amount of time your accountant must spend to complete your tax filing. “If you don’t keep good records, it can be a lot more expensive than it needs to be.”