Organizing for tax time

Yes, tax season is here again. Last year maybe you thought about organizing for tax time. If you did it, that’s great! If not, there is still time.

Organizing for tax time

As more things become digitized, the easier it becomes. But organizing your paper receipts doesn’t have to be difficult. You will need to dedicate a few hours to get what you need together.

Divide everything into three piles: 

• Income
• Expenses and deductions
• Investments

Income

All of your income, even the interest on your bank account, is important. If it’s reported to the IRS, you need that paperwork. Your W-2s and/or 1099s need to be reported as part of your taxes. Freelance work payments, jury duty payments, cashing in savings bonds and gambling winnings are all part of your income.

Expenses and deductions

This is where you may have a tower of receipts, especially if you itemize your deductions. Medical bills, utility bills, property taxes, child care, charitable donations, car expenses (gas and repair receipts) and even business dinner receipts will be a part of your expenses and deductions.

Here is a list of possible deductions you may find handy: (list courtesy of taxreceipts.com)

• Advertising & promotion
• Bad debts
• Bank fees & loan interest
• Casualty losses
• Charitable contributions
• Clothing
• Communication
• Education
• Equipment
• Gifts
• Hiring help
• Home office
• Insurance
• Licenses and dues
• Legal and professional fees
• Meals & entertainment
• Postage and mailing
• Publications
• Rent
• Repairs and maintenance
• Research
• Start-up expenses
• Supplies
• Taxes
• Transportation
• Travel
• Utilities

It might be unnecessary to go through this drama if you use the standard deduction and don’t itemize. However, many tax preparers and software you can use yourself suggest you list your deductions and see which method gives you the best results.

Investments

You may need several statements for your taxes. Keep annual statements, purchase receipts, sale confirmations, year-end overviews and dividend notices. Make separate piles for tax-deferred investments, nondeductible investments and taxable investments because they need to be listed in different places on your tax returns.

For next year

Consider the three categories of income, expenses/deductions and investments for next year. Set up a binder, envelopes, folders or boxes to accommodate the paperwork that comes in the mail throughout the year. As you receive these statements and forms, put them in the correct folder or box and you’ll have a lot less sorting to do next year at this time.

You don’t need fancy file systems or expensive binders that will take a lot of time to set up and use. Instead, pick whatever method works best for you and makes sense to you. You probably already have what you need at home.

If your receipts and forms are digital, you can use folders on your computer to do the same as you do with the physical ones. Organizing for tax time can be done in a logical way with sub folders for the three categories.

Need help organizing your home office to get ready for taxes? Contact me, I’m happy to help.