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Blog: Can We Have Some Order Here?
The Tax Man Cometh -- Better Late Than Never

Everyone I know who filed a tax extension is now knee-deep in paperwork, trying to get their tax returns filed on time. I can hear the blood pressure levels rising, even as I type! Tax time is incredibly stressful for a lot of folks -- mostly because they have to hunt and dig to find all their supporting documents. But you can make tax season much easier next time, if you set up a regular routine for organizing your financial records throughout the year.

A Stitch In Time Saves Nine

It's trite advice, but it's true -- investing just a little time up front will save you hours (if not days or weeks!) in headaches down the road. Just dealing with a piece of paper (reading it, deciphering what it says, and determining what purpose it serves in your life) takes time and mental energy. When you have to go back and revisit a piece of paper again and again, you're wasting time. That's why putting a document in a pile with plans to figure out where it goes "later" is a bad idea! If all year long, you stuff your receipts and statements into a box (or even a trash bag, as I've seen some clients do), it's going to take much longer to sort through them later than if you'd set aside a few minutes to separate the wheat from the chaff up front. So when a tax-related item comes in, you want to organize that information in a way that will keep you from having to re-organize it again down the road. Setting up a system that allows you to file and record your tax papers as they come in is a HUGE time-saver! You might want to have:

  • files for charitable donations (if you give cash to your favorite charities throughout the year, keep the receipts, letters of thanks, and/or canceled checks in a folder or envelope labeled "Cash Donations" -- receipts for the stuff you drop off at Goodwill and the Salvation Army can go in a different spot labeled "In-Kind Donations" -- keeping these separated will make it easier on you or your accountant when it comes time to tally)
  • files for business expenses (if you run a home-based company or engage in business activities for which you incur a personal cost, you need to be keeping track of your monthly expenses -- there are a couple of options, depending on how you think about your finances -- first, you could store receipts according to the type of expense, like "Marketing" or "Professional Development" or "Home Office" -- or you could set up a file for each vendor with whom you do business or account you maintain -- or you could set up a file each for January through December, and simply store that month's worth of receipts together)
  • files for medical expenses (not everyone has to hang on to medical expense paperwork for tax purposes -- but you do need to if you either file a medical tax deduction or have an HSA-type account that lets you spend pre-tax dollars on your health care -- if you're worried about what will be meaningful at tax time and what won't, my advice is to just keep everything listing dollar amounts on it for the entire year -- store "Explanations Of Benefits" in one file, "HSA Statements" in another, and "Doctor Bills/Receipts" in a third -- then, when it's time to fill out your return, you won't have to worry that you accidentally threw something away that you needed to refer to later)
  • files for home expenses (these days, there are a lot of tax credits available for homeownership -- certainly you'll want files for "Mortgage Statements" and "Property Taxes," but you may also be eligible for tax breaks related to energy-saving "Home Improvements" -- and if you've got rental property, you'll definitely need a place to store receipts for your expenses related to managing and maintaining the unit -- talk to your accountant to find out what you can and can't deduct, then use that information to develop the appropriate categories for your situation)
  • files for tax payments (most workers have their income tax payments withheld from a paycheck -- but more and more people who could participate in withholding are opting to make monthly/quarterly estimated income tax payments the way we self-employed folks have always done, in order to avoid giving the IRS any more money than they have to, any sooner than they have to -- however you pay, you need to keep the canceled checks or payment stubs in a file labeled "Income Tax Payments" -- this is especially true if you're hit with a big tax bill or penalty at the end of the year, or if you have to pay capital gains tax on a large windfall -- you'll also want to keep proof of  "Other Tax" payments that are deductible, such as ad valorem and property taxes)
  • files for investment papers (all year long, your investment plans send you monthly or quarterly statements -- set up a file for each of these, but understand that you don't actually have to keep those statements with your long-term tax paperwork -- what's more important is having a permanent place for the "Trade Confirmations" you get every time you buy or sell, and the "Annual Summaries" that list all of your account activity for the entire year -- store these with your permanent files -- you're going to want to keep those for as long as you have the investment, to document any capital gains tax owed when you sell -- and once you get that end-of-the-year summary, you can shred the monthly/quarterly statements)
  • files for other deductions (each person's situation is different, so it's possible that you might be able to take other deductions beyond the ones I've mentioned, such as tax credits for money spent on private school, for financial losses, etc. -- you and your accountant need to figure out what you qualify for and set up a file for each type of allowable expense)
  • files for account statements (while the only people who really have to store their bank and credit card account statements with their tax paperwork are those taking business deductions, it's still a good idea to have these documents organized and at the ready for tax time -- you never know when you might need to refer back to a statement to tally up your expenses, so set up files for each individual account -- and don't forget a file for "Year-End Statements," for all those 10-whatever forms you start receiving after January 1st)
  • files for tax returns (while you are only required to keep supporting tax documents for 6 years, you have to keep tax returns forever -- so I'm a big fan of setting up a spot in your permanent files for all of your "Returns," stored separately from the supporting documents and kept in chronological order -- that way, you won't accidentally toss your return out when you pitch a bunch of old receipts, and you can easily put your hands on a previous year's paperwork when you need it later)
  • files for income (finally, you need some way to track proof of income, be it "Paystubs" or "Invoices" for work you did as a self-employed person or independent contractor)

Your job, once you've set these files up, is to stay on top of putting that category of paperwork away, in the right place, when it comes in. You don't have to file daily -- weekly is preferred, but even monthly is better than once a year!

read the original post of this blog

posted on: 9/8/2011 11:30:00 AM by Ramona Creel
category: General Organizing Tips

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Can We Have Some Order Here?

by Ramona Creel

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About Ramona:

I have been a Professional Organizer for more than 10 years, I am a NAPO Golden Circle member, and I was the original founder of OnlineOrganizing. I have worked one-on-one with scores of clients and have trained dozens of newbie organizers as they got started in the industry. I provide both hands-on and virtual coaching to help clients improve their organizing skills and simplify their lives. I invite you to visit my website at http://www.RamonaCreel.com, and I challenge you to find one new idea that you can put into practice in your life, to help you become better organized, starting TODAY! I am passionate about coaching folks toward a more balanced, productive, and enjoyable life -- and I firmly believe that if I can do it, so can you!

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