Tax season has a reputation for generating a ton of stress. Unfortunately, paying taxes is an unavoidable civic duty. All that stress shouldn’t have to be, though.
It’s surprising, given that nearly all U.S. citizens must file state and federal tax returns, how few consumers really take the time to get organized and stay that way. Getting organized in advance instead of waiting until the very last minute is the key to avoiding tax-season breakdowns. Read on to find out how to get started gathering necessary documents and call Brown Smith Wallace to schedule an appointment with an accountant in advance.
Prepare in Advance
Before so much as opening up a folder or envelope, it’s worth taking the time to get prepared. Make a point of purchasing file folders or manila envelopes, a few permanent markers, and a paper shredder in advance. They’ll come in handy and will certainly be worth the small investment for taxpayers who don’t already have them on hand.
Speaking of being prepared in advance, it’s worth noting that while taxpayers must wait until tax season to file, they can start getting organized at any time of the year. Those who have found their way to this article have likely done so because they’re feeling inspired. Hold onto that inspiration and use it to get the ball rolling in advance.
Keep the Filing System Consistent
Whether they choose to use manila envelopes, file folders, or just paper clips, it’s important to decide on a system and stick to it. Those who choose to go paperless will still need to worry about the organization. They’ll just be keeping electronic folders organized instead of hanging folders in an actual filing cabinet.
Divide all relevant documents into specific categories and label literally everything. It will make staying organized throughout the coming year much easier.
Information About Personal and Business Income
The income file or folder should contain any and all documents pertaining to active and passive income. Keep pay stubs, W-2s, and 1099s in this folder in addition to interest statements and dividend statements. Don’t forget unusual sources of income like jury duty pay.
Medical Expenses
Keep every receipt pertaining to medical expenses. Put receipts from doctors, hospitals, clinics, pharmacies, dentists, and other professionals in this folder along with proof of insurance payment for health, dental, and vision insurance. Don’t forget to get receipts for any medical supplies paid for out of pocket.
Real Estate Papers
Put together real estate tax documents, mortgage interest statements, insurance receipts, and other relevant documents. Those who have made improvements to their home in the prior year should also include receipts for materials and labor costs. They won’t always be tax deductible but it’s good to know where they are, just in case.
Work-Related Expenses
Keep receipts for all work-related expenses that haven’t been covered by employers. For W-2 employees, these might include receipts for union dues, licensing renewal fees, educational expenses, or required supplies.
Those who are self-employed will have to be a little bit more specific about how they organize their work-related documents. They might want to set up different folders for things like advertising, office supplies, employee and contractor payments, business expenses like meals and travel, equipment rentals or purchases, and IRA or 401(k) contributions. Keep home-office utility bills in a separate folder if working from home, as well.
Child Care Payments
Parents should make a point of keeping detailed information about their child care payments. This is true whether they use professional daycare centers or hire the occasional babysitter. Collect contact information and Social Security numbers, as well.
Deciding How to File
Once they’ve put together an effective system of organization, taxpayers can simply add receipts, pay stubs, and other documents to their folders or files until it comes time to file. At that point, they should start giving some thought to how they want to file.
Consider tax status in advance. Married couples can either file separately or jointly depending on their unique financial circumstances. Those who have children or care for dependent adults should make a point of reporting them, either way.
There are also a variety of methods for tax filing. By far the easiest and most foolproof method for filing taxes is to simply hand off all the information collected above to an accountant.
It may be tempting to just fill out paperwork by hand or download a cheap tax filing software program in an effort to save some money. The reality is that these methods don’t tend to save taxpayers much, if anything, after considering all the deductions they may have missed. They also fail to offer the kind of audit protection that filers can expect when working with a professional accountant.
Hold Onto Documents
The IRS suggests hanging onto those old tax documents for at least three years from the date of filing or two years from the date of payment. Simply put all the envelopes or folders used above aside along with all completed tax paperwork. This will ensure that all the information will be easy to find in the event that a taxpayer needs to amend his or her return or, even worse, winds up being audited.
Get a Jump Start on Next Year
Now that they’ve come up with effective organizational systems, taxpayers should continue to use the same system throughout the coming years. Simply label the second set of empty envelopes or file folders and start accumulating receipts and documents as they are generated.
Many taxpayers also keep what amounts to a transition envelope in their kitchens, living rooms, or wherever they tend to sit when they pay bills. Label this envelope, as well, and fill it up throughout the month. At the end of each month, move all the receipts and documents to the labeled envelopes.
The Take-Away
Few people like filing taxes. Getting organized and staying that way is the best way to remove some of the stress from the entire process, though. Once they’ve got solid organizational systems in place, taxpayers can simply hand off all their documents to their accountants or have all the resources they need in one place to file for themselves.
