Everyone thinks that their mom is practically invincible but my mom really is. She has survived cancer, a few strokes, and heart surgery. She buried both of her parents in the span of a year and has outlived all but two (of seven) of her brothers and sisters. She raised my brothers and me and managed to keep her sanity (trust me, that took some real doing).
She is pretty amazing. Today, on Mother’s Day, I’ve been thinking about how much she means to me and how much I’ve learned from her. And I figured I’d share some of her wisdom with you. Her truths are pretty universal – and they apply to tax and finance just as much as they do to life.
I used to have a shorter list but it’s been updated since there’s always more to learn (although, sadly, I still can’t make pie). Here’s a list of eleven things I’ve learned about tax from my mom:
1. Have a plan. When I was a kid, money was tight. My mom knew that she had to budget, so she had a plan. Every two weeks, she made out a shopping list organized by store and aisle (yes, we hit more than one store, you did that in those days). She consulted the sales papers (they came out on Thursdays) and she organized her coupons. At the store, as my brothers and I swung on the carts (the ones that said for kids not to do such things), she quickly and efficiently did her shopping with a chunky calculator in hand, adding up her purchases as we went along so as not to go over her budget. It worked. When the cashier rung up our groceries, there was never a moment where we had to collectively hold our breath to make sure that we could afford what was in our cart. We already knew.
The same strategy works with taxes. Know what you can afford and plan ahead. Always review your tax returns after you sign them – don’t just put them away – to see why you owed (or didn’t) and make any necessary changes for the new year as soon as possible. Adjust your forms W-4 (for withholding) if necessary, especially if you had a significant life event like getting married or having a baby. Make estimated payments throughout the year if you think you’re going to owe. If possible – and especially if you run your own business – meet with your accountant on a quarterly basis to make sure that you’re on track. You don’t want any surprises at tax time.
2. Don’t be greedy. My mom is an amazing cook. She makes a carrot cake that’s so good it would make you blush – and reach for seconds, if not thirds. But my mom also went to great lengths to remind us that there was no need to be greedy, sometimes one piece is enough.
The same logic applies in the tax world. You’re completely entitled to take appropriate credits and deductions. The law doesn’t require you to pay more taxes than you have to pay. But be smart. Don’t puff up deductions or claim credits that you’re not entitled to take. Don’t stretch the truth. You’re just putting yourself at risk for audit. Remember, pigs get fat, hogs get slaughtered.
3. Neatness counts. My handwriting is terrible. It’s always been terrible maybe because I’m always in a rush. But it could be worse. When I was a kid, my mom used to make us practice our penmanship by copying articles from the newspaper. I would complain loudly because I didn’t see the point. I was, I would remind my mom, a very good student. And mom would reply that it didn’t matter how good a student I was if nobody could read what I wrote. She was right. Neatness counts.
Believe it or not, the IRS still counts human error among the top reasons for flagged returns. Rushing through your return can result in mistakes. If you print your returns, make sure that your writing is neat. And if you use a computer program, make sure that you’ve entered the right info: it’s easy to transpose digits on Social Security numbers, wage amounts and even bank accounts for Direct Deposit. Your documentation should likewise be neat: receipts for business and charitable expenses, mileage logs and other forms must be legible to be considered valid.
4. Show your work. I enjoyed math as a kid (I still do) and I was good at it. I could do a lot of figures in my head which came in handy on the math team. But my teachers insisted that I show my work. And I hated to show my work because I knew that I was right. But my mom, like my teachers, made me show my work. “How else,” she would query, “will you know that you’re right?” (For the record, “I just do” was not an acceptable answer.)
The IRS is on the same page. You must be able to document everything – from medical expenses to gambling losses – in order to properly claim deductions and credits. Guessing isn’t good enough. You need receipts, mileage logs, and other required documentation in order to substantiate your claims.
5. Be generous. We had more than a few lean Christmas holidays. And yet, every single Christmas, my mom would insist that we do something for a family who had greater needs than ours. I learned very early on that it was important to give back no matter what your own financial circumstances. And when we couldn’t give money, we gave our time. I watched as my mom visited the sick, volunteered in schools, cooked for those in need, and taught illiterate adults to read. She was never judge-y or preachy. She just did. This is something that I hope I can pass along to my own children.
And the great thing, from a tax perspective, is that you can take a deduction for your efforts if you itemize. While you can’t deduct your time volunteering, you can deduct your out of pocket expenses. And of course, you can also deduct the value of cash and non-cash items that you donate to qualified charities.
6. Follow the rules. In the seventh grade, a teacher threatened to give me a failing grade on my report card because he said that I had not turned in a final project. I had turned in the project and I told him so. He denied it. And I called him a liar in.front.of.my.mother. She immediately grounded me because the rule in our house was that you don’t disrespect grown-ups, no matter what the reason. It turned out that the teacher found my project and I got an A. And I stayed grounded. My mom told me that it wasn’t always about being right (which I was) but that I still had to follow the rules.
Like my mom, the IRS is big on rules. Pay attention to them. You have to sign and date your return. You have to timely file your return – in fact, dates matter to the IRS a great deal not just when it comes to filing original returns but for filing amended returns, claims for refund, and requests for reconsideration. Don’t assume that you get a pass because you’re right. You still have to follow the rules.
7. Remember that life isn’t always fair. When I was a little girl, my mom got cancer. Since that time, as I noted, she’s had some pretty tough luck. Her mom died of cancer. Her dad died suddenly of a heart attack. She got diabetes and a damaged heart valve. And while I was willing to wail and complain about every little thing that happened to me that it wasn’t fair, my mom would cheerfully remind me that “life is not fair.” And she was right.
You might get bad advice. Your employer might screw up a form. You might be the target of a random audit. Bad things happen, even to good people. But complaining won’t make it better. Don’t freak out and don’t put your head in the sand. You can fix this. Open the mail. Ask for help. And know that things will get better.
8. Keep learning. My mom is smart. She’s well-read. But she’s not a college graduate. She grew up as the youngest daughter in a family of eight children in the rural South. Opportunities for girls to go to college were pretty limited; maybe that’s the reason it was so important for her for me to finish college. But my mom didn’t give up on education just because she wasn’t in school anymore – and neither should you.
It’s true that tax laws can be confusing but that’s no excuse for not reviewing your return and asking questions. Make an effort to know what the rules are, at least as they apply to you. Read the newspaper, follow a tax blog, make friends with a tax professional. Nobody expects you to be an expert but you should know enough to be dangerous.
9. Make an effort. My first road race was the Rothman 8k. The night before I was supposed to run, I panicked. I called my mom. There were supposed to be nearly 14,000 runners. “What if,” I asked my mom, “I come in 14,000th?” Without skipping a beat, she said, “Are your friends running with you?” I told her no. “Then,” she said simply, “You’re already ahead of them.” She was right.
Sometimes, it can be intimidating to do your taxes – or tackle outstanding tax obligations. Maybe you’re afraid to open the mail or dive into that pile of tax returns that you’ve been putting off because you worry about what could go wrong. But taking the first step and making the effort is half the battle. That puts you ahead of all of those other taxpayers who might be paralyzed into inaction. Don’t be like them. Don’t stay on the sofa. Make the effort.
10. Learn to cook. Okay, this is one I borrowed from my brother. Mom made sure that he knew how to cook, saying “you never know when you’re going to be by yourself.” Years later, after his divorce, my brother admitted, “She was right.”
This goes for taxes and finance, too. When you get married, you assume that it will be forever. That’s not always true. Many of my clients find after they are divorced or widowed that they have no understanding of the state of their finances, whether tax returns were timely filed with payment or whether those returns, when submitted, were accurate. Often, this leaves the client scrambling to find out how to get into compliance, sometimes involving paying back significant amounts of money. Relief might be available but the burden can be steep: when you’re married, each of you is supposed to review a tax return for accuracy before signing the return and the assumption is that you knew or had an obligation to know what information is on the return. Further, each taxpayer has an obligation to ensure that tax obligations are satisfied. By law, when you file a joint tax return, both taxpayers are jointly and individually responsible for the tax and any interest or penalty due on the joint return even if they later divorce (or are widowed).
The best advice? Review every return before you sign it. Make sure that you have an understanding of what should be on your return. Double-check that payments have been made when they should have been made. And – this is important – make sure that you know where all of the important papers are, where accounts are held and how they are titled and what your income and expenses look like. Stay on top of your finances. You never know when you’re going to be by yourself.
11. Be kind. Thinking back, I can count the number of times that I’ve heard my mom raise her voice to someone other than a member of my family on one hand (and my brothers totally deserved it). She chastises me for my lack of manners from time to time, reminding me to be nice to people. And it’s a good lesson – perhaps the best one of all.
It pays to be kind, not just to your family and friends, but to your financial advisors, your attorney, and your tax professionals. They’re trying to help you, remember? And that IRS rep? The examining agent? The Revenue Officer? Just doing their job. Starting out on a bad note won’t help you and will likely just make things worse. Take a breath. Remember rule #7. Smile. It will get you further than you think. Trust my mom on that one.