A Little Time Now Will Save a Lot Next Year Come Tax Time
Were you one of the millions of people who raced to the post office on April 15th, bleary-eyed and exhausted from the last minute rush to prepare your taxes?
If so, this column is for you! With the pain April 15th still fresh, take a moment right now to set up a basic filing system that will ensure you’re not running around with your hair on fire next spring, hunting for papers and trying to make sense of receipts.
Alicia on ‘A Place for Everything’
‘If you’ve ever tried to sort through a shoebox full of receipts in one sitting you know that making sense of such a stack in retrospect can be quite a challenge. But even a shoebox is preferable to no filing system at all. If you don’t have a place for receipts and tax files, chances are you will lose something important, which can cost you unnecessarily on your deductions, or worse, get you in hot water with the IRS. So it is absolutely critical that you have at least a place to put your tax related items throughout the year. We recommend an accordion file — they’re cheap, easy and portable.’
Sarah on ‘A Little Bit Each Day’
‘When we recently asked stretched and stressed individuals about the trick to getting organized, the overwhelming majority (94%) agreed that the secret was in doing a little bit each day. But staying on top of receipts on a day-to-day or week-to-week basis is difficult to accomplish without some basic underlying structures that enable you to take those small steps without too much effort. If you have to think or work too hard, the tendency is to put it off until later. Happily, you can set yourself up for success by simply purchasing an accordion file and setting aside ten minutes to create labels. So add them both to your to-do list for today and come April 2007, you’ll have saved valuable time, energy and sanity!’
The three tips below will help you get in the habit of putting tax papers away throughout the year, so you’ll have less of a headache come April of 2007.
#1: Use This Year’s Return As Your Guide
The schedules you use when preparing your taxes, such as the Schedule C, can be a very good guide for categorizing your accordion file. Another good option is to replicate the categories found in the accounting or tax software you use. The system has to work for you, so keep it in a language and format that you use. As a rule of thumb, the following categories apply to most people: Income (W-2s, 1099s), Medical, Donations, Home/Real Estate, Child Care, Tax Forms, Student Loans, Miscellaneous. Remember, you can always start with the basics and add categories as you need them! Don’t let the need to have ‘perfect’ categories prevent you from getting started.
#2: Take Notes
All it takes is a few seconds to jot down a note about a particular receipt — whether it’s for a medical expense, a charitable contribution, or a miscellaneous deductible expense. The minute you are handed a receipt of any kind, jot down two things on the back side: (1) the date, (2) a brief description that will help you remember what it relates to at a later date. That way if you end up carrying the receipt around in your briefcase for awhile, you will still know how to file it eventually.
#3: Reward Good Filing Habits
Positive reinforcement is an excellent tool — why not use it on yourself! For each month you stay on top of your filing, give yourself a treat. Consider that you have saved yourself at least an hour of hard work — so enjoy that now!