Deep in the Heart of Taxes
It's that time again. When the enticement of balmy April weather must be firmly resisted in favor of wrestling at the dining room table with the thicket of schedules and forms that stand between me and the avoidance IRS penalties. All of which is to say, taxes must be postmarked by Thursday. Thus, I went into total immersion yesterday morning (pausing only to send up this flare to my blog constituency).
I do the taxes for the whole community. That means that I start by preparing Sandhill's corporate return, parlay that into completing every member's 1040, and conclude by doing returns for the state of Missouri. (For nuances about the favorable tax options available to us as an income-sharing community, see my blog of last year, Mining the Tax Code. For more about how I relate personally to being the Designated Tax Matters Partner, see my blog of two years ago, The Tax Man Cometh.)
Every year there's a sequence to this treasure hunt:
a) Pore over the electronic accounting to see that things have been entered properly (Hint: they're never completely right). It's kind of like an Easter egg hunt, where you're looking for anomalies, trying to discover as many as you can before you hand in your basket to the judges.
b) Pull together the oddments of accounting that are needed to create a complete financial statement and balance sheet (accounts receivables as of Dec 31; market value of all our bank accounts, loans, and investments; how many days of last year each person was a member—fun stuff like that).
c) Calculate depreciation and complete Form 4562. (For this I need the odometer readings on all our vehicles when the clock struck midnight Dec 31.)
d) Fill in Schedule F, where the farming aspects of community operations are catalogued. (I needed the depreciation numbers for line 12, where we use the standard mileage deductions for business use of our vehicle fleet.)
e) The bottom line on Schedule F becomes our answer to line 5 of Form 1065 (we file a partnership return because, as an income-sharing community, the corporation is tax exempt and net profits are passed through to the members on a pro rata basis, reported as dividend income on their 1040s).
f) On Schedule A (I'm still on Form 1065), I summarize the non-farm business expenses, which mostly fit comfortably under the umbrella of Sandhill Outreach. The three workhorses here are administrative work for the Fellowship for Intentional Community, Stan's career as an organic inspector, and my efforts as a process consultant.
g) I wrap up the 1065 by tackling Schedules L & M. This covers our balance sheet and the members' capital accounts, which is a bit of fiction needed to make everything add up. That's as far as I got by midnight last night.
h) Today I take each person's pro rate share of our reported net income and plug into seven different 1040s. I'll send an email to Käthe & Michael Nicosia (who left the community in October) giving them what number to use on their 1040s. Sandhill will cover any taxes due as a result of their having lived here part of the year.
i) I'll reserve my personal 1040 for last, as it's complicated (is anyone shocked?). The straight-forward part is that I file jointly with my wife, Ma'ikwe. The curve ball is that she doesn't live at Sandhill and thus is not part of our income-sharing collective. Half of the money I earn as a process consultant goes to Sandhill, and half goes to my marriage (the rest of my economic activities flow wholly to Sandhill). This second half needs to be combined with Ma'ikwe's earnings before I can crank out our joint 1040.
j) The last calculating hurdle is to do it all one more time for the state returns, which is not hard as Missouri returns key directly off what you send the feds.
k) Last, I print out copies, chase down everyone's autograph, write checks (if necessary), and consign it all to the US Post Office. Whew.