Pulling together all the papers for tax time can be traumatic. It is such a big job that many people procrastinate even when they’re getting money back. It may be too late to organize this years tax papers but, you can set things up for an easier tax time next year. As you are prepping for your taxes this year, pay attention to what is causing the hold up this year so you know where changes need to happen. Walking into the accountant’s office all organized and ready will cost you less time and money than walking in with a shoebox of receipts. Here are a few steps to help you prep for this year and create a plan to make tax prep easier next year.
Do you know what you need? Sources of income, prior year tax returns, investment information and itemized deductions are a few things you will need. As you are collecting items, write them down to create a checklist of items to include in your taxes. So often we recreate this list in our head and never put it to paper. A checklist will help you capture everything the first time around.
Are your papers scattered around the house? As you are receiving items in the mail for your taxes, give them a landing place. If they are scattered around the house, this will slow down your preparation and cause some overwhelm with the process. The place for all tax related documents for the current year will depend on the quantity of tax items you receive. Most people find that a file box, a space in a file drawer or a single hanging file will work. As items come to your home, put them in the tax drawer/file. This makes it easy to gather all the needed items.
Sort your papers, put like with like and create files. If you have a large amount of papers you collect though out the year for your taxes, then create files for each category to help with your tax prep. For example, you might have files for deductible donations, health expenses, and/or education expenses. A general rule of thumb is if the file has less than 10 pieces of paper then try to combine it with another file. This would mean if you only have 10 pieces of paper for deductions then you only need one file. If you have more than 30 pieces of paper in a file, then consider breaking it apart into multiple categories/files if it makes sense.
Are your charitable donations all together? If you are a giver, that’s wonderful! If you have a favorite charity you donate to, then it’s pretty easy to track. If you donate to many organizations it can be a bit trickier. One of the best ways to track multiple donations is by using the same method of payment. Having all donations in your checkbook or on one credit card can make it easier to track and document for tax purposes.
Shred past tax documents. This year, as you wrap up your tax appointment with the accountant, ask how long to keep your tax returns and back up documentation. We all hear the general rule of 7 years, but your accountant will be able to give you guidelines specific to your situation. This will give you the opportunity to clean out some paper from your past taxes.