April 19, 2007
Making Tax Time Less Taxing
The official deadline to file your 2006 taxes has now come and gone. Congratulations to those of you who calmly prepared and filed your tax returns on time, or even early. For many people, though, tax time is a cause for anxiety and the filing of requests for extensions of time to file returns. If this sounds like you, here are some ideas to make tax time next year significantly easier and less stressful.
If waiting until April is your usual approach to getting your taxes done, don't fight it. It makes more sense to accept it and plan for it by getting organized. Even if you don't normally wait that long, getting organized will help take the sting out of the inevitable. The minimalist approach is to simply toss all your tax related papers into one file, envelope, shoe box, etc. You'd be surprised at what a big difference even this small amount of organization can make. When it comes time to sit down and look through your papers, at least they'll all be in one place and there won't be any last minute scrambling to find them.
For those of you willing to do more than this, here's what I recommend. First, make a list of all the various kinds of information you or your tax preparer will need: income records, interest and dividend records, medical bills, charitable donations, capital gains and losses records, deductible expenses, etc. Next, get some large envelopes, manila folders or even Zip Lock bags and label them with the name of each of the categories you've decided on. Lastly, go through the papers you've already accumulated this year and put them in the appropriate place. Continue to do this with any new, tax-related papers you get during the rest of the year. If you're feeling really inspired, keep a running tally of each different kind of tax-related item and avoid having to do it all at the end of the year. There are financial software programs like user-friendly Quicken that can help make the process easier. You can also use a simple Microsoft Excel spreadsheet or even a handwritten list.
No matter what system you use to get organized, use it consistently and diligently. This will help to ensure that you don't overlook any possible deductions and will make tax time next year a breeze, not a dreaded chore. If someone else prepares your taxes for you, they will be grateful and you could end up saving money by saving them time.
After your tax returns are completed, make two copies. One should go with all your supporting documentation and be stored in a safe, out-of-the-way location like a high closet shelf. You should only need to refer to this folder again if you're ever audited. For easy identification and retrieval purposes, be sure to put the tax year on the outside of the file somewhere easy to see. The second copy should be filed in the "Taxes" folder in your main household filing system. A copy of each year's tax returns should be saved permanently in the unlikely event that authorities claim you did not file a return. FYI: If you fail to file a return or file a fraudulent return, there is no time limit on when the IRS can audit you. Tax experts recommend saving supporting documentation for 3-7 years, but check with your accountant, tax preparer or financial advisor for advice about your specific situation.
RECEIPTS & WARRANTIES
TIP #1: If you haven't saved receipts for deductible items, evidence of them may be found on your credit card statement or in your check book register. If you don't record checks when you write them, you can review your bank statements and copies of canceled checks. You may want to designate one credit card solely for tax-deductible expenses to simplify your record keeping. Ideally, this credit card will be one that sends you an annual summary of categorized expenditures. If you've paid cash for a tax-deductible item you intend to claim, but haven't saved the receipt and have no way to prove that deduction, keep in mind that it might be disallowed if you're ever audited.
TIP #2: When you get a receipt you believe IS tax deductible, note the category/reason on the back (i.e. business related entertainment expense) before you file it. You'll find this written reminder to be a valuable time saver
at tax time.
TIP #3: Once you've checked a receipt for an item that is NOT tax-deductible against your credit card or checking account statement, toss it. Don't let unnecessary paper take up precious space in your file cabinets or storage areas. Be sure to shred or otherwise destroy it if it contains identifying information like an account number. Only save the receipt under the following conditions:
- Until the return period for the item expires or until you decide to keep it.
- Until the warranty period expires.
- For insurance purposes for as long as you own the item.
- For budgeting purposes as long as it's useful to you.
TIP #4: Periodically toss receipts and warranties for any items you no longer own.
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MILLER ORGANIZING. All rights reserved.
14 Stuyvesant Oval
NYC, NY 10009