Organize Your Household Tax Information Once and For All
Does the thought of tax season stress you out? Of course it does. Taxes are not easy. That’s why there are CPAs and tax companies out there that have years of education and experience to do them for you. Of course, they are still very doable to do by yourself if your situation isn’t too complicated. Regardless of your tax filing method, you still need to have all of your documents in order. And if you haven’t been proactive about your organization method, you may find yourself scrambling much more than necessary. Here’s what you need to do to get your taxes organized once and for all.
You are going to need a few items before you get started. First, you either need some 10 x 13 manila envelopes or standard file folders. The envelopes are probably the better choice if you have a lot of loose receipts to keep track of, but file folders are easier to store and add items in a hurry. If you do opt for the file folder method, staple a basic letter envelope to the inside of the folder to place the smaller receipts. You will also need a highlighter and an empty file cabinet drawer or a plastic file box. If you are tracking miles, a small notebook is also a must.
Sort it Out
Now you need to label the folders for the different types of items you will be gathering throughout the year. You will definitely need an income folder and a deduction folder, but if you want to break it down further than that, feel free. It really all depends on just how much you collect.
• Income – This is the folder where you will place your W-2s, 1099s, any investment statements, and dividend earnings. As you get them, file them.
• Deductions – Make any donations to charity? Have job-related expenses that were not reimbursed? Those documents go here, along with any medical receipts, child-care expenses, and property tax information. If you have a home office, you will also want to make sure to save any utility bills and related expenses. If you are unsure if it qualifies for a deduction, save it. It’s a lot easier to discard something unnecessary than track down something that is.
• Mileage – You can deduct any miles traveled for work that were not reimbursed, as well as any driven miles for medical reasons or charitable work. To use this deduction, you need to be meticulous with your record keeping, which is where the notebook comes in. Keep it out in plain sight in your car so you don’t forget to use it.
1. If you are self-employed, you may want to separate your expenses into the actual categories you are asked for on your taxes, such as supplies, office expenses, and advertising. Keep a note of which categories you have reportings for this year and make your folders accordingly.
2. Make a photocopy of any receipts you keep. They fade quickly, and a blank receipt will get you nothing. Highlight the deductible charge on the copied receipt before you file it.
3. If you really want to make it easy on yourself, make yourself a handy dandy spreadsheet. Make columns for any and all regular expenses, like utility bills, rent payments, supplies, etc. You will also want to make columns for money coming in from all sources. Yes, it takes a few extra minutes each time you get something to input it into the document, but come tax time, you will be thankful you did it. It’s a lot easier to input all of the data from a spreadsheet than it is to sort through heaps of paperwork. But make sure you still save all the paper proof just in case you get audited.