April 24, 2008
April 15, 2008 – No Mess, No Stress!
Once again tax day has come and gone. Were you scrambling to have your tax preparer file an extension or were you stress-free knowing that all of your paperwork was in order? For many people, April 15 feels like the end of the world, but the logistics of filing a tax return don't have to drive you crazy.
As you can imagine, being a Professional Organizer I'm a big fan of staying on top of your tax records throughout the year, rather than sorting through boxes of receipts every April. It will actually take less time to prepare your taxes if you do. Though many people find organizing their tax records time-consuming stressful, annoying and plain, old B-O-R-I-N-G, having a reliable system in place makes it a much easier process. Setting up a reliable system is actually quite simple, but no system works unless you actually work it…consistently. So, if you dread tax time, here are some practical tips for getting your paperwork organized in time for filing NEXT year's return!
TIP #1 - CATEGORIZING: Check with your tax advisor to determine how they want your documents submitted. Just separating papers into INCOME, EXPENSES AND STATEMENTS may be enough. If a more detailed breakdown is required, set-up one folder or envelope for each account, type of income and category of expense or deduction.
TIP #2 – WHAT TO KEEP; WHAT TO TOSS: Keep only those receipts that show your TAXABLE INCOME and DEDUCTIBLE EXPENSES. You can safely eliminate receipts for items that are NOT tax-deductible unless they are used for budgeting purposes (only keep them as long as they are useful); are for items under warranty; or until the return period for the item purchased expires or you decide to keep it. For example, there's no need to keep utility bills – except for budgeting purposes - unless you take them as a deduction for a home office. Don't be afraid to eliminate unneeded receipts. It will reduce the clutter, confusion and sense of overwhelm.
TIP #3 – USE IT, THEN LOSE IT: If you use receipts for budgeting purposes, create your own “Expenses” spreadsheet so you can easily track them all in one place and then dump the actual receipts. Don’t forget to shred any documents that contain personal information that could be used to steal your identity - social security numbers, bank account numbers, credit card numbers, etc. Don't worry about shredding something simply because it has your address on it. Your address is already out there in a million places anyway.
TIP #4 – KEEP A RUNNING TOTAL: If you do your own taxes and have a lot of tax deductible expenses, using some kind of financial record keeping software - or even just a simple Excel spreadsheet - to keep a running total throughout the year will lighten the load enormously at tax time. Use the same categories as the expense and income entries you had on your tax return last year.
TIP #5 – MAKE IT EASY ON YOURSELF: Once you have sorted the paper into categories, choose an appropriately sized container to hold it all. You may need a file drawer(s) if you have a lot of categories and paper, but a simple accordion file will work if you don’t. Keep your tax related file(s) near where you process mail and pay bills. That way, you can file tax documents once you’re done with them. Make your files easy to access, easy to use, easy to put away and you'll have a system that works for you not against you.
TIP #6 – GIVE IT TIME: Setting aside time to attend to tax records is an absolute must if your system is going to work well. Ideally, this should be done weekly or monthly. Once every six months is NOT sufficient!
TIP #7 – RECYCLE, ARCHIVE AND PURGE: Instead of reinventing the wheel next year, just re-use the system you created this year. Remove all of the previous year's tax back-up documentation and put it in a single envelope, folder or box. Label it with the title “Tax Records”, the year the return was filed and a destruction date (see below). You need to keep final, yearly Tax Returns FOREVER so put them in a separate envelope, folder or box and store them in a safe, out-of-the-way place. Legally, you can be required to produce your tax returns at any point, but after 3 - 7 years after you've filed your return, you can shred the backup documents. Check with your tax preparer for advice on how long to keep your supporting documentation.
The best time to start preparing for tax time is the year BEFORE, so if you didn't do it last year, start now for next year. It's not too late and - come 2009 - you'll be glad you did.
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MILLER ORGANIZING. All rights reserved.
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MILLER ORGANIZING. All rights reserved.
14 Stuyvesant Oval
NYC, NY 10009