Would you like to know how to be ready for tax time next year? If you set up a filing system now you will be ready every year before tax time rolls around again. We all know the items the IRS is usually looking for, right? I have to have everything organized whether it’s my house, garage, closets, cupboards or tax stuff. It’s who I am. I am not a tax professional or giving you tax advice here today, I just want to share some of my tax organizational tips. So let’s get started.
Ready For Tax Time
I’m not sure how you feel, but tax time each spring is one of my least favorite times of the year. It’s not just the tax that has to be paid, it’s the challenge of gathering all the tax related materials I’ll need so the tax forms are complete and accurate when sent in. Years ago my husband and I decided we needed to have a system in place so the effort is less time consuming and as accurate as possible.
The first step was to identify and list the items that would be needed. We then put together a series of file folders for each type of receipt or form that would be needed. We all know the usual stuff like the W-2’s for payroll information, 1099’s for interest earned and MISC income generated, 1098 forms for interest paid on home mortgages, etc. From these examples, we’re reminded that both income and some types of expenses contribute to the final tax calculations. There are other issues that may need to be addressed, like voluntary contributions to the charity of your choice, property taxes paid relating to your home and/or cars, certain education expenses, withdrawals from an IRA or other retirement accounts, etc.
We decided that a more consistent approach to information gathering was also needed. My husband suggested that as part of the monthly steps we take to balance our bank statements, we would record and file the activity shown on the statement that would ultimately be needed at tax time. If we sent a check to United Way or deposited funds to our checking account that were withdrawn from our IRA we would make copies of the transactions and file them in the appropriate file folder for future reference. Sure, it took a few extra minutes each month, but it has saved us so much time in the long run because we do it when the activity is fresh on our minds and we remember “why” we did what we did and how it might affect our taxes later.
One thing to remember is that each state is different, so the items you save for review might be needed to not only complete your Federal Income Taxes, but also the state of residence if there is an income tax in your state. Also, some states may allow certain deductions where others won’t. I’m not a tax expert and can’t provide specific tax advice, that is between you and your accountant. Be sure to ask questions as they come up, don’t wait until later when it may be too late to make changes in how you approach purchases or record income.
Another thing we did years ago was purchase a good bookkeeping program we could run on our computer. There are many choices, but we decided on QuickBooks. My husband has a good grasp of accounting concepts and used those to set up his “chart of accounts” as if we were running a small business. When we spent money or received funds from various sources we would enter the information in our QuickBooks program and assign the activity to the appropriate account. This not only helped us throughout the year to be prepared for tax time to come, but it actually helped us monitor our budget on an ongoing basis to make sure we stayed on track. A great feature of this type of software is that you can print off reports for your accountant as needed, or the full file can be sent if desired.
Another tool to consider, although not used by me, is a program like TurboTax. This type of program is a great time saver and one that can help you stay on track with the actual tax computation and filing. The program may also prompt you to think of both income and expense items that should be considered. We have daughters who think Turbo Tax is the best investment ever.
When we are ready to file our quarterly taxes we are ready in minutes because of the organizational steps we have done for years. Here is a list of file labels you may want to consider for your tax time efforts:
I use the Avery brand address labels #5160 and affix them to folders that are actually hanging pockets. These are the two things I use:
Avery Easy Peel Address Labels for Inkjet Printers, 1 x 2.62 Inch, Box of 750 Labels, White (08160)Smead Hanging Pocket with Full-Height Gusset, 3-1/2″ Expansion, Letter Size, Assorted Colors, 4 per Pack (64291)
Labels For Tax Time
1099’s and copies of checks to reconcile
Car and Other Personal Property Taxes
1031 Exchange Information
Hud Settlement Sheets from home purchases
Business expenses, food, supplies, advertising, gifts, shipping expenses, if applicable to your small business