Organizing Your Taxes

Organizing your taxes can reduce a lot of stress that leads to procrastination when tax time comes!

How you organize your taxes will have a lot to do with where you are in your life and how detailed or extensive your taxes are. Back when I was single I would wait for my W-2 to show up and fill out an EZ form in 15 minutes and be done! Things are not quite that simple anymore.

As I put this page together, tax season has just ended and hopefully many of you are awaiting your refund checks so you can pay off some bills or buy yourself a treat. For those of you who had a hard time getting you tax papers together for filing, this is the perfect time to get things in order for next tax season.

What Documents To Keep When Organizing Your Taxes

Before organizing your taxes, you need to know what to keep.

When the new year comes we always plan to do our taxes ASAP. The only thing holding us back is waiting to receive all the paperwork from employers, banks, etc. We always ask the question “did we get everything we need yet?” Well, instead of asking and wondering, why not make a checklist so you’ll know for sure!

Your list will vary every year depending on changes in income, banking, investments, expenses, etc. Check out TurboTax’s tax preparation checklist for a detailed list to help you put together your personal checklist.

You may also want to go back to last years tax papers and see what documents you received saved and submitted. Use that as a starting point for organizing your taxes for the upcoming year, adding or subtracting certain documents as necessary. For example, last year you didn’t have any stock options, but this year you do, so you’ll need the supporting documents for that when taxes are due, so put that on your list to make sure you are watching for it to arrive.

Here is the basic TurboTax list. If you were to have all of these items apply to you, which you most likely don’t, then your list of items you’re going to need and are expecting would be as follows:

Income

  • Income from Jobs - W-2s
  • Investment Income
  • Income from State and Local Income Tax Refunds
  • Alimony Received
  • Business or Farming Income
  • If You Use Your Home for Business – see list of items needed
  • IRA/Pension Distributions
  • Rental Property Income
  • Unemployment Income
  • Social Security Benefits
  • Income from Sales of Property
  • Miscellaneous Income – see list of possibilities

Adjustments

  • IRA Contributions
  • Student Loan Interest
  • Medical Savings Account Contributions
  • Moving Expenses
  • Self-employed Health Insurance
  • Keogh, SEP, SIMPLE, and Other Self-employed Pension Plans
  • Alimony Paid
  • Educator Expenses

Itemized Deductions

  • Childcare Expenses
  • Interest you paid – mortgage, etc. – see full list
  • Charitable donations
  • Casualty and theft losses
  • Job expenses
  • Other miscellaneous tax deductions
  • Medical and dental expenses
  • Taxes State and local income taxes Real estate taxes Personal property taxes

Again, this is an extensive list and you will need to cut it down to only what applies to you. Please check out the detailed list here.

Where to Store Your Tax Documents as You Receive Them

I’m sure you’ve seen on TV how people pull out their shoe box of tax receipts and their tax person sighs in horror? Well, for most of us, a shoe box or folder is about all we need to organize the handful of tax documents we receive for the year. But if you have a lot of deductions or also run a business, you’re going to need to do a little more organizing for sanity sake when tax time comes. Be sure to keep any business related papers in their own filing system. The main goal here is to keep it as simple as possible so that you’ll use it, but detailed enough to make the task of preparing taxes much easier.

The Single File Tax Folder

This is the shoe box or folder. Place all your tax documents in this folder when you receive them so they’ll be ready when you prepare your taxes. No sorting required. This will only work if you have no more than about a dozen documents you expect to work with. Your tax forms or tax software will guide you as to what you need to pull out next. When you get to the end of your tax forms, you should not have any documents left in the folder. If you do, you need to double check where that document belongs in your calculations.



Organizing Your Taxes with Categories and Sub-Categories

You can take it a step further and actually organize your tax documents into various folders or sub-categories. These would be based on the tax list and will definitely vary by person. Use a main hanging file with the tax year written on it. Then make subfolders for the various tax documents you need to keep. Another alternative is to use an accordion folder and make a section for each category you intend to use.

You can start with four main categories within your tax year folder. The categories would be: Income, investments, expenses, deductions. That may be enough for you or your tax preparer to process things more quickly. You may want to write some notes on the folders to help remind you what types of documents go inside each folder.

Tax Year XXXX

  • Income: W-2
  • Investments: 1099 forms received, year end bank statements, brokerage and mutual funds statements.
  • Expenses: Mortgage interest, property taxes, medical bills, childcare, job related moving, other big ticket items such as a car or home.
  • Deductions: charitable donations, job expenses.

If you have a LOT of paperwork to gather in any of the four above categories, then you may want to add sub-folders as well. Perhaps you have a lot of medical expenses and get lots of receipts to keep track of. Then you may want to make a sub-folder specifically for medical expenses within the larger “expenses” folder. You will want to refer to that tax preparation list to determine your needed categories. For example, not everyone needs to keep credit card statements unless they support some sort of deduction, and not everyone needs to keep utility bills unless you’re deducting for a home business.

Tax Year XXXX

  • Income
  • Investments
  • Expenses Medical Bills Childcare
  • Deductions

The method you use for organizing your taxes is up to you, including where you put things. Ask yourself “where am I most likely to look for these types of documents?” Label your categories to suit yourself. Remember, it’s your system, so make it work for YOU. Also, don’t make it more complicated than it needs to be.

Preparing your Tax Returns

You should receive all of your forms from your employers, banks and investment firms by mid February. Employers and financial institutions are required to send out W-2s and 1099’s by January 31st. However, that is not a guarantee. Regardless, I am an advocate of TurboTax. The software is very thorough and remembers all my personal information and tax info from the previous year, saving me a great deal of time entering data. It helps walk me through the process step-by-step making sure I don’t miss anything and that I get the best return I’m allowed.

Storing Your Tax Returns

Yay! Once you’ve filed your taxes you need to file your tax documents away. Make a file folder or use a large manila folder and write the tax year on it. Place a copy of your completed tax forms in there along with all of your supporting documents. Store this file somewhere safe and out of the way; keep it for seven years. After that, you will still want to keep the tax forms you filed, but it should be OK to purge the supporting documents.

Getting Ready for Next Year

Once done organizing your taxes for one year, you're pretty much set for the following years! Your accordion file or file system will now be empty and ready for the upcoming tax year. Make any adjustments to organizing your taxes to help streamline the process, without going overboard and making it more complicated than necessary. Were there things you were missing? Information you had to look for? Be sure to add any categories which you may be expecting paperwork for, or remove any which you won’t need. Now is a great time to tweak your system.

Need More Help Organizing Your Taxes?

Organizing your taxes with these techniques are pretty basic and will work for most people. If you still have questions you may want to contact your tax professional.


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