Are you dreading that most onerous of tasks - preparing your income taxes? While it may not take the pain out of this year's chore, try a few of these organizing tips going forward from today and next year's tax prep will be significantly easier. As you accumulate paperwork throughout the year that you must save for your taxes, you
need to have a system in place to retain all of it in an organized fashion. Consider this system:
- Get a 13-pocket accordion-style file folder. Label the front "Taxes - 2011". (I like the larger of these from The Container Store: large 13-pocket accordion file.)
- Label the first pocket "Income". In this pocket will go your W-2 forms, 1099 forms, and documentation of any other income, such as alimony, social security, unemployment, etc. This pocket can also hold information about investment income, unless there is a significant amount of paperwork associated with your investments. If that's the case, make a separate pocket for "Investments".
- Label the next several pockets for each category of deduction that you take on your tax return, such as: Interest Paid, Charitable Contributions, Taxes (deductible), Educational Expenses, Medical/Dental Expenses, etc. As you accumulate receipts and other documentation for these categories, file them into their appropriate pockets.
- If you have business expenses, label the next pocket "Business" and file receipts here for anything tax-related to your business. You may want to have a separate, smaller accordion folder for business expenses and income, with a pocket labeled for each category of deduction (travel, vehicle expenses, home office expenses, etc.) The smaller, receipt-sized folder here works well for this: small 13-pocket receipt file.
- The second-to-last pocket should be labeled "Forms/Lists", to hold any blank tax forms, estimated tax forms, and family-related information.
- Label the last pocket "Tax Return". In this pocket will go a copy of your completed return.
Every week, schedule a time on your calendar (ideally the same time each week) to file all of your tax-related paperwork into your tax folder. If you are like most people, this will take no more than about 10 - 15 minutes. When it comes time for you to prepare your taxes next spring, or to get all of that paper organized for your accountant, all the information you need will already be sorted and at your fingertips. Consider the amount of time it takes to file a very small stack of receipts and documentation weekly into your tax folder. Compare that with how much time and stress you expend in late March/early April trying to track down all of your paperwork and sort through everything when it's scattered all over your desktop and throughout your files. How much time will you save? How many deductions might you miss out on if you can't put your hands on the right documentation? 10 - 15 minutes per week seems like a valuable time investment, doesn't it?
When you have filed your return (or received the completed form from your accountant), take your back-up copy and file it in the appropriate pocket in your folder. Then take the entire accordion file and put it in a banker's box and store it with your previous years' tax returns in an out-of-the-way, but safe place. Ideally, at the end of seven years of doing this, you will have seven accordion file folders - one for each of the last seven years. Then, since you only need to save seven years' worth of documentation (with some exceptions - check with your accountant), take out the oldest accordion file folder (this year, it would be for the year 2004), empty it out, shred the paperwork, and re-label the folder "Taxes - 2012", so it becomes next year's folder. In this manner, you can rotate the same seven folders indefinitely (buy sturdy ones!)
And one last tip:
Keep a zip-top, plastic, 5" x 10" pouch in your purse next to your wallet, in your briefcase, or even in your car. Every time you get a receipt, coupon, or important note, train yourself to put it immediately into the pouch. Once a week, at the same time as you do your filing, sit down and sort through the accumulation. Record pertinent receipts into your checking account, file others you may need in the future (for taxes, etc.), transcribe notes into your calendar and immediately SHRED anything you know you won't need after that day! This will help you keep what you need and eliminates those small bits of paper that stuff our wallets and clutter our purses and briefcases.