How does one tackle taxes, you ask? Â Well, if this were a football blog, I would tell you to lower your head, hit with your shoulder and drive with your legs until the taxes are flat on their back. Â Actually, in a figurative sense, that works…
Are you Ready for Some Taxes?
Tax time can be one of the scariest times of the year. Â It can take a large amount of time to sift through file folders, old emails, receipts, and figure out what is supposed to get reported and what isn’t. Â However, being organized can mean you are able to take advantage of more deductions and credits, which means a bigger refund!
Traditionally, most people would have their taxes prepared by a firm that specializes in tax preparation.  Nowadays, more and more people are filing their taxes online, through H&R Block, TurboTax, or other products.
Either way, you need to be able to come up with the required tax forms and supporting documents. Â Some tax firms say “give us your forms and we’ll take care of everything.” Â They take what you give them and make sense of it, asking for additional info when necessary. Â Other firms send you a questionnaire to fill out, so you have to make sense of many forms yourself in order to answer the questions. Â And then you still have to send the documents to support your answers. Â If you prepare your own taxes, obviously you need to go through your documents, make sense of them, and fill out the forms correctly. Â Needless to say, you can save yourself a lot of headaches if you are well organized.
What’s in your Tax Playbook?
Essentially, there are two areas that you must keep organized: Â electronic records and physical records.
Electronic records consists of any soft copies of documents that you may receive. Â This could be PDFs, Excel spreadsheets, online statements, e-receipts, emails, or scanned documents. Â Physical records would be any piece of paper that you get in the mail, from work, paper receipts, or a hard copy of an electronic record that you printed.
Some people are more comfortable with physical records. Â If this is you, make sure to always print out a hard copy of any electronic record that you receive. Â That way, you can file it away and feel confident knowing that you have hard copies of everything all in one place. Â On the flip side, others are more comfortable with electronic records. So if you want to go paperless, you just need a scanner to turn any physical record you get into an electronic record. Â Either way, you are consolidating your record-keeping.
For electronic records, you’ll need to make sure that you keep your emails organized. Â I have various labels that I use to sort through my messages, including multiple finance labels (Giving/Donations, Online Purchases, Bank Statements…). Â This makes it much easier to find the relevant emails I want.
What’s your Tax Strategy?
For both electronic and physical records, you need to have a filing system. Â On your computer, all of your files are sorted into folders. Â In your office, you should also have your paper files sorted into folders. Â Here are some suggestions for filing categories:
- Receipts
- Work Statements
- Bank Statements
- Rent/Mortgage Statements
- Giving/Donation Records
- Utilities Records
- Car Records
- Insurance Records
- Health Records
These categories are just examples, so you should arrange your files in a way that makes sense to you. Â You’ll also probably want to break them into sub-categories in some cases:
- Receipts
- 2012
- 2013
- Car Records
- Our Sedan
- Our SUV
The important thing is that you have a system. If you don’t have a filing cabinet for physical records, you can buy one from Amazon or Target. There are big ones and small ones, but having one (and using it) will make your life a lot less cluttered.
Let’s Get Specific
We’ve talked a lot about organization, but how do we organize with tax prep in mind? Â We simply need to know what documents will be needed for our taxes. Â When we know what those documents are, and where to find them, taxes become much easier.
A basic list of documents you’ll need:
- For Reporting Income
- W-2 from your employer(s). Â These should be provided to you by the end of January in most cases.
- 1099 forms. Â This is for interest you earned in a savings or investing account.
- For Itemizing Deductions
- Receipts for charitable donations
- Car registration statements
- Loan statements (mortgage, school, credit cards…)
- 401K/IRA contribution statements
- For Other Situations
- Home purchase paperwork
- Marriage paperwork
This list is very basic, but it should give you a good idea of what you’ll need. Â I bet you thought that list would be longer, right? Â Now, it is true that you can file your taxes without itemizing your deductions. Â You can just take the standard deduction and be done with it. Â But if you are organized, then you have the option to itemize your deductions, which in some cases means you’ll get a larger return. Â For example, if you give a decent amount of money to charity or recently bought a home, it’s probably worth itemizing your deductions.
An indirect benefit of itemizing your deductions is that it forces you to go through the various areas of your life from the previous year. Â If there’s something that you missed, you’ll probably notice it when itemizing your deductions. Â This actually happened to me this year. Â I went looking for my car registration renewal and it wasn’t where it should have been. Â As it turns out, the DMV never got my updated address, and so I never received a renewal notice. Â Which means I also never renewed my registration. Â Needless to say, I went and took care of that as soon as I found out, so I wouldn’t be driving around without a valid vehicle registration.
By being organized, you will be able to file your taxes earlier, which means you’ll get your refund sooner. Â And you’ll avoid unfortunate situations caused by ailing state budgets — a few years ago, California started issuing IOUs instead of tax refunds because they ran out of money. Â But the ones who filed early got a check in the mail, not an IOU.
So that’s it! Â The best thing you can do to tackle your taxes is to get organized. Â It might mean starting a new habit or two, but it’s worth it.
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