Get Organized For Tax Season!

As that dreaded day, April 15th, approaches many of us will be burning the midnight oil, sweating bullets to get those tax returns filled out correctly and in the mail on time.

It’s never a fun process, so chances are you avoid the topic all year and then wait until the last possible second to drag out all of your receipts, bills, and invoices. As you desperately hunt through the stack of financial details, trying to remember which transactions mattered, you might wonder to yourself: ‘why didn’t I organize these things a little bit at a time over the course of last year? This entire process would have been so much easier and less stressful…’ We agree! And we encourage you to follow our simple plan for tax organizing a little bit each month so that next year’s income tax filings will be a breeze. You may never enjoy filling out your returns, but it’s inevitable. As Ben Franklin once said, ‘In this world nothing is certain but death and taxes.’

Alicia and Sarah on ‘Setting Up a Tax Organizer’

The goal here is to establish a system that’s simple enough to set up and use all year long. Once that’s in place, it should be easy to do a little bit each week (we recommend 5-10 minutes) so that next year’s filing doesn’t become a colossal headache. All you need to get started is 15 file folders (you can keep them in your regular file cabinet or in a separate box), a pad of post-its, and your checkbook register.

Once you have the supplies, just follow the three, simple instructions below.

#1: Give Everything a Home
Take the 15 file folders you set aside and label them for each of the critical tax categories:

  • Bank Statements
  • House Bills (mortgage, property tax)
  • Investments
  • Medical/Insurance
  • Charitable Donations
  • Last Year’s Return
  • Work Expenses
  • Credit Card Statements
  • Other Income
  • Other Expenses
  • Other Deductions
  • Work Compensation
  • Retirement
  • Dependents

Look at your last year’s return and talk to your tax preparer about what items specific to you might go in each folder. The final folder should be called YUNKâ„¢. YUNKâ„¢ stands for ‘You Never Know’ and is for everything that you think might be useful but are not sure about. File it here now and deal with it later. You are also always better off filing away too many things now and throwing away whatever you do not need later. Recreating the wheel at the 11th hour is what takes so much time, adds gray hairs, and raises blood pressure.

#2: Annotate Tax Related Items with a Star
Credit card and bank statements along with check registers can be a good place each month to record taxable items. Before you file things away, get out a pen and put a star next to items that have tax implications. Things to consider would be charitable contributions, interest income earned, tax payments made, home office purchases, or state tax returns. By highlighting them now, it will be a cinch to capture them next year. If you don’t have a tax-related item on your statements — throw them out! You don’t need to keep them — keeping unnecessary papers around will just add to the confusion next year and take up precious space.

#3: Post-It
Now for the pad of post-its…as you file away items each month, jot down questions and information that you might forget in the coming months. Just put the notation on a post-it and stick to the bill or statement it refers to. Some examples might include: ‘Is this really taxable? Only $100 out of the $200 paid for charity dinner is deductible. Printer is for part personal and part business use, can I deduct?’