March 3, 2011

Avoiding Tax Time Drama and Stress

If working on your 2010 taxes is not on your to-do-list yet, it may be time to think about putting it there and making tax season less taxing. Despite that fact that taxpayers have extra time this year to file their tax returns (April 18 is the deadline), you can avoid scrambling to get things done at the last minute by getting started now.

While being prepared and in control may not take away the sting of paying your taxes, it can spare you or your tax preparer aggravation, help decrease the chance of errors on your return and maybe even save you money. It's the next best thing to getting a refund!

Regardless of whether you do your own taxes or use a tax preparer, gather together all your tax-related papers in ONE dedicated, easy to access location. Search your home for receipts, canceled checks, bank statements, donation forms, tax forms, tax preparation booklets, etc. and put them all here. Toss or shred/recycle any papers you no longer need that don't impact your taxes in any way. If you're not sure which papers to keep and which you can toss, check with your tax preparer or lawyer.

You can organize your tax-related papers in labeled folders, an accordion file or simply toss them in a box or container big enough to hold them all for sorting later. Your system can be elaborate or basic, depending on your needs and preferences, but the point is to have ALL of your paperwork in just ONE place. Whenever a tax-related form, like a 1099 or a W-2, arrives in the mail, it should go here to avoid accidentally throwing it away or misplacing it.

Once you've created a system for keeping track of your tax-related documents and a location for them, make a habit of using them. Going forward, file all tax-related paperwork here throughout the year as soon as you get it. If you do, you'll ensure that you have all the documents you need when it comes time to file your 2011 taxes in 2012.

If you itemize your expenses and charitable contributions, you need to have the supporting paperwork that backs up your claims. That means you need to have your receipts and gift acknowledgements and you need to organize them so you or your tax preparer know where to deduct them on your tax return. A check file, which has several slots with divider tabs, does a good job of it. Set up categories that mirror the expense categories you use on your taxes (Medical, Education, etc.), label the divider tabs accordingly and drop your receipts in. Once your receipts are organized into categories, take it one step further and tally each category so that figure can be dropped into the appropriate boxes on your tax returns, when the time comes.

After your taxes are filed, you'll be ready to put away your 2010 tax papers. I recommend taking the time to archive them with your paperwork from past years rather than shoving them back in a filing drawer (especially if it’s already bursting at the seams!), leaving them in a bag under your desk, etc. Keeping a copy of your tax return and all supporting documentation together in one place will make it easy to refer back to them, if necessary. It will also keep no longer active files from cluttering up your current active files. Label them 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.

If you're committed to making positive changes in your life, help (including a free phone consultation) is just a call -- (212) 228-8375 -- or an email away.



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