“Hooray! It’s tax time!” said no one, ever.
Paying taxes is never fun, of course, but a dreaded chore is even more daunting when you have a toppling pile of papers to tackle. And it can cost you if you show up at your accountant’s office with a disorganized mess. Even worse? You might miss some key deductions.
“In order to maximize your refund or minimize the amount of tax owed, you should work on preparing for tax season all year long,” said Tom Till, owner of Compass Tax Solutions in Houston.
We may be a little late for 2015, but you can get a jump on next year’s taxes with these organization tips.
1. Develop a System
Start off on the right foot by creating and maintaining a system to file documents in separate folders as they arrive, suggests Amy Trager, a certified professional organizer in the Chicago area.
“That way, if you need something specific during the year, you know where to look,” Trager said. Come tax time, you’ll have everything sorted to dig in yourself or pass on to your tax preparer.
2. Choose Categories That Matter to You.
Every person’s filing system may look different as they customize it to fit their needs, but here are some broad categories Till suggests based on the most common deductions that people itemize above the standard deduction:
- Property taxes
- School taxes
- Charitable contributions
- Unreimbursed business expenses
- Mortgage interest
3. Go Digital.
No doubt you’ll have some paper files, but there are a number of apps that can make it much easier to track your spending to organize the possible deductions, according to Mark Wingo, president and CEO of New Beginning Financial Group. Two he likes are Expensify.com and Mint.com.
4. Keep A Running Total.
“Tally information at the end of each month or quarter — whatever makes more sense for your needs,” suggests Trager. “Keeping a running total of your expenses and quarterly payments will save you loads of time come January next year.”
5. Double-check Everything.
“Every year I see people rush to get their taxes filed, but then they realize they have missed a deduction or filed before they got a 1099 from an investment firm,” Till said.
He recommends you use an organizer to jog your memory so you know which documents you still need to obtain. Find one online or from the tax firm you’ll be working with, which often will have last year’s information pre-filled in as a starting point.
6. Shred and Store Smart.
To avoid identity theft, shred any papers you saved but didn’t need. Then, once taxes are finished, store all the paperwork you may need should you be audited in one folder, Trager recommends.
“It’s also much easier to shred a file when you’re ready to let that year go,” Trager said.
Wingo recommends clients keep their tax paperwork for at least six years.
“If you file as a business, you want to keep detailed records of all of your expenses, such as your mileage log, travel expenses, food and entertainment, office supplies and operating costs to justify your deduction in case you are ever audited,” Wingo said.
Designate a box or bin for tax records and put them on a high shelf or in an offsite storage unit so they are safe and out of the way, but accessible if you need them.
The final bonus for being organized? The sooner you file, the sooner you get a potential return!