Taxes be done!

Ah, the dreaded tax season. I know just the word ‘taxes’ can make people’s stomach turn into knots and anxiety creep into the forefront. It’s an important task, it can be time consuming, it can help or hurt a financial decision or big purchase you’re planning on. So there is a lot riding on doing them correctly. Right now, taxes are a big focus in blog land, so I won’t go too much into how to do your taxes this year so I don’t repeat too many of my fellow bloggers! However, I have decided to list out my tips and tricks for staying prepared for taxes all year long. Hopefully that way, they won’t be such a burden at the beginning of each year.

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1) Designate a folder for the current year’s tax documents. – This is the first and most important step into staying organized for tax season. I just label mine ‘TAXES’ and anything that comes up tax related goes in the folder. Throughout the year, if you get a receipt for a charitable contribution, a 10-99 or other tax statement from an individual or organization, a copy of a real estate tax statement, etc, put them in this folder so you will have them when you need them. If there is an item I also need to file somewhere else (such as a real estate settlement paper in the real estate folder), I make a copy for the tax folder. There are some things (such as medical records) that I don’t copy throughout the year because there are a lot of papers for some categories. I do this all at once at tax time if I’m itemizing these or another type of document. But for the most part, I try to keep track of things in the ‘tax folder’. This helps in two ways:

-You won’t be searching through endless folders and piles when it comes time to pull all of the necessary papers together.

-You won’t forget about a crucial transaction, deposit, donation etc and miss claiming it on your taxes.

2) Keep tax returns from previous years together and in a safe place.  – The typical statute of limitations for the IRS to audit previous returns is 3 years, which means that you should definitely keep your returns for the previous 3 years. However, several states have longer statutes of limitations so it’s best to check with your state’s guidelines. The S.O.L. also increases to 6 years automatically for you if you fail to report more than 25% of your gross income in a year. There are also recommendations on how long you should keep documents concerning the sale of property, securities, retirement fund rollovers and many other types of documents. It is always good to discuss these kinds of concerns with a CPA or other financial professional if you have detailed questions. Simple Tip Time! My personal preference is to keep documents for 7 years. This covers the Statute of Limitations by the IRS as well as time limits for other misc transactions. The returns only take up about 6″ worth of space in a file cabinet and I know I’m covered.

3) Know the supplies you will need when you start doing your taxes. Here is my list:

-Pen and pad of paper – As I start going through the tax preparation documents, I know I will have questions and will also be making a list of any papers I need to submit. Before I even open my file drawer, I make the list so I know what I’m looking for. That way, I only have to pull the files one time. Our accountant sends a questionnaire so I have that as a guideline when making my list.

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-Post it notes and paperclips – Once I start pulling out documents, I want to be able to keep everything straight. I use the large Post-its to make 3 categories – ‘Documents to send’, ‘our copies’, and ‘originals-no copies sent’.

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There are items which I note in my taxes (such as medical bills), but I don’t actually send in copies of the papers to our CPA. So that is why I have the ‘originals’-no copies sent’ pile. If you are doing your taxes yourself, you probably won’t need the ‘documents to send’ pile. The key here is to keep everything organized and to use a system that works best for you. I use the small post its to separate other misc piles that I might want to keep separate.

-I also pull a blank manila folder out that will hold this year’s return and all related paperwork.

4) It is also a good idea to put a blank piece of paper in the front of your revolving ‘tax folder’. If you think of questions throughout the year, write them down on this paper so you won’t forget them when the next tax time comes around. This is particularly true if you have had an event that is outside your norm, such as the birth of a child, purchase or sale of a property, or atypical charitable or gift contributions.

5) If you file your own taxes, make sure you are up to date on any changes to the tax laws which have occurred in the previous year. There may be an added allowable deduction that could help you out!

I’m no tax expert, but I am a believer that if you have a system for something that is tailored to your individual needs, any project can be made easier and more manageable!

Now it’s time to start preparing your taxes for next year :)

~Erin

3 thoughts on “Taxes be done!

  1. Wow! This is really good advice! You have included great tips that I had not thought of. I especially like the idea of inserting the blank paper for emerging questions. We pay to have our taxes prepared every year but it is my job every year to compile all of the documents which I find quite stressful because I am afraid I might have lost or forgotten a document. Love your system! ~Thea

    • Thanks! It helps to stay on top of it year round so that you’re not scrambling at the end. Of course, I still scramble a little. It’s a lot to do! And I compile all of our stuff too so it’s a little stressful!

  2. Since we are/were self-employed, we take utility bills and phone bills into consideration. After a few years of going back through all the bills for the year, I finally started a spreadsheet and keep track of bills monthly as I pay them, so that at the end of the year, all my data is right there in one place. :)

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