Organizing Your Taxes
/Tax season can be distressing for most people, especially if there is no organized system to follow. And if you’re a tax season procrastinator, it can get particularly hard for you. You know the pain that comes with scrambling for the right documents and receipts at the last minute.
But you can ditch that pain simply by becoming a little more organized. All it needs is some patience, a little discipline, and a fair degree of dedication to get the work done.
Here are some simple techniques you can use to keep all your tax documents and receipts neatly and organized.
Filing
Having a file for all your taxes is a great idea. If you have other official documents and papers, bills and debts, it’s better to keep your taxes out of these issues. Your taxes are a separate concern from other revenues and expenses.
Another point to keep in mind is that taxes come from different places. They don’t all come from the same origin. If you’re a homeowner then you may have to pay taxes on rent, electricity, phone bills and further services. It’s better to have separate files for each of these as you may or may not get asked for specific proof of any of these tax payments.
If you run a business though, you’ll have many more files to keep. You will need to keep taxes on carriage and shipments, sales and purchases, liabilities and assets separately. There are many more files you may have to open so it’s better to consult with your accountant on this matter.
Right after filing comes, of course, labeling.
Labeling
Labeling makes it easier for you to navigate through all your files. Rather than looking through each bundle of papers you find, you can instead place labels over all your files. Naming them after what the taxes are designated to, their importance or how often you have to pay them in the year are excellent sorting criteria. It makes looking for a specific file a much easier task. It also makes filing your taxes an even easier chore as you have labeled and easy-to-spot locations for them already made.
Once more, being a homeowner and a business owner are two very different things. And the likely chance is you’re going to have a lot more taxes implemented in your life if you’re planning on running a business.
Common sorting categories can include some, if not all, of the following:
Income
Medical expenses
Charitable donations
Real estate paperwork
Property and sales tax papers
Child care payments
Student loan payments
Self-employment expense receipts
Utility bills for home-office deductions (if applicable)
Annually Refreshing your Tax Files
Once the year is over for one period of tax payments, place all your files in one singular binder for the past year. Never get rid of any documents or receipts in a hurry. They all hold significance.
The IRS recommends storing all tax documents for 3 years from the date of filing the original return. Or, for 2 years from the date you paid the tax. If any bad debts get deducted or there are worthless securities, then hold onto your returns and supporting documents for 7 years.
But for the next year, it’s better to start on a clean slate instead of rummaging through all your past year files. Once the year is over, pack the files away together somewhere you’ll be able to find them. Make new files and labels for the coming year that correspond with the previous year.
To be at your top game, try to keep one binder for each year. The binders may pile up in your drawers or closet but they are worth the space. Say, you’re called out for an occurring issue involving a document from three years ago. It’ll be less of a hassle if you have one distinct binder with all your files from that year.
Ensure that all your labels correspond with the previous year’s labels. This can help when comparing the previous year’s taxes with the new annual taxes for any issues or debts.
On-The-Go Bookkeeping
When you’re going out to buy anything, keep a small book with you or a pouch to keep all the receipts you receive. Organizing these receipts later can be done with the process mentioned in steps 1 to 3.
To you, these type of purchases may seem small, but they do add up and all are implemented with tax. By keeping a record of all the things you buy either on a monthly basis or annual basis you can see how much disposable income you use. It also makes it easier to figure out the exact number of what you have. Monthly, of course, is easier and has less chance of being imprecise than annual.
This type of record is highly beneficial for those who are keen on saving. This helps you figure out the exact amount you’ll be inserting to your savings. You will also have a better idea of how much of your gross income actually goes into saving or gets spent. This step isn’t mandatory but the others listed are if you wish to keep a clean, easy, and organized filing system.
Benefits to Reap
Once you become a taxpayer, you’ll have tax documents and receipts from payments made earlier. It’s always better to have copies and originals placed in an organized fashion so that you may refer to these whenever and if ever needed.
As you become accustomed to your new organization system, filing your taxes will be a breeze. You'll have all the official information you need to protect your taxpaying status. You can find mistakes or extra taxes that you can recover and you’ll be ensured as a well-paying taxpayer with no issues. All it takes is a little determination and work so your part of the job is easier.
If you live in the Boston area and need help getting your paperwork organized for tax time, give us a call.
