Slide up next to me at this park bench. I hope you have a cup of something warm from your favorite local drink place. Are you as comfortable as you can be on a park bench?

Good. Let's tip our cups together (I have a 16 ounce hazelnut latte if you're curious and it's made with care and love of coffee roasted locally in Portland, which isn't burning down, and with oatmilk gently steamed and holding it's foam. It might even have a sprinkle of nutmeg.) But I digress. Let's talk about basis tracking requirements, shall we?

If you're a tax preparer, you likely know exactly where this week is going. Especially considering this is being written on October 10th.

If you're a bookkeeper who works closely with tax professionals, you also likely know where this is going.

If you're a business owner, person, or individual, this may ring a bell, but may not make very much sense.

I'm keeping today incredibly brief though, so I can get back to tax returns due next Wednesday.

And if you're a professional reading this, replace, "your," with, "your client." And, much like a depreciation schedule, give your client something.

I cannot stress the importance of tracking your basis in your investments. Yes, that includes your S-Corporation. It even includes your Partnership. Even the ones that have never made any money and have little to no activity in them from one year to the next. Even the S-Corporation election that was made on a whim or at the advice of an influcencer or an ad you saw on social media promising the election would save you tens of thousands of dollars in tax.

They all need their basis tracked. Every single one of them.

Ideally, you have a basis schedule you keep in your files that's also updated every year. That basis schedule might be part of your entity's paperwork and it might be part of your personal paperwork.

To get highly technical, it should be kept with your personal information - it's a requirement the individual track their basis.

Within my practice, I calculate basis based on the information I have for every entity client I prepare, and I provide that basis information to the entity client. I have a separate spreadsheet I use for this. Two, actually. One I keep in my workpapers that's rather extensive, and one that's rather short that I provide to clients with their tax return as part of their "Tax Year Insights," summary. I tell them they need to keep it, and that's important, and I move on.

I also track this information in the individual's tax file. I save that basis spreadsheet to the individual's workpaper file and I use it to compare it to the tax software. It's not the cleanest. but, it also means I'm not doing the work twice.

But Megan, I don't have that basis information because my tax preparer isn't so awesome as you! Or, but Megan this seems like a lot of work do I really have to do it? Or, but Megan I don't like keeping track of that much paperwork.

I understand. I do. But, yes, it matters. Eventually, that business will close down. Whether it's a boom over time that sticks around for decades until you retire, you actively decide to cut your losses and close, you sell the business in its prime to reap the maximum gains, or the business is left to your loved ones at your death, that basis will make a difference in that year of closure. It changes capital gain and losses calculations.

And if you don't have that basis, it has to be reconstructed. Ideally from all prior year K1s.

Hopefully, you're learning something here and you only have a few years to go back and correct. Or maybe you don't know if things are right.

Fall is a great time to consider reviewing your activity for these corrections. If you're looking for help, here's where to get started with Crayon Advisory, LLC (yep, that's my business where I'm the solo practitioner) at your side.

For now though, I'm back at tax returns.