It's the Perfect Time to Organize Your Taxes!
It is never too early or too late to organize your taxes! Make life easier by following these steps to get your taxes in order. There is no reason to dread income taxes every year.
According to the IRS it takes approximately 13 hours for the average taxpayer to do his or her taxes! Is this you? Wouldn't you rather use that time doing something else?
This article provides steps and resources to help you organize your taxes and free your time. Although taxes can be intimidating and overwhelming, it is possible to make this routine task easy and effortless from this year forward!
Step 1: Know what you need to organize your taxes
The first step in organizing your taxes is to know what to keep throughout the year. This allows you to create special homes for forms, receipts, and other necessary documentation.
Stay on the lookout all year for tax preparation materials and place them in their established homes. No more frantic tax-time searches!
Another benefit is you can stop storing paperwork that is not relevant for tax purposes. Most people automatically hang onto utility bills, canceled checks, credit card statements, and bank statements for tax purposes. Unless they support any of the deductions you will submit, they are of no use at tax time. As an example, it's only necessary to keep old utility bills if you use part of your home exclusively to run a business, in which case a percentage of the utility bills can be deducted from your taxes. Only keep the records you need in your new system to organize your taxes! The rest is just clutter!
TurboTax offers a tax preparation checklist to help you identify the information needed to organize YOUR taxes. Print it out and use it to create folders for your tax information.
Supplies Needed to Organize Your Taxes
- Tax preparation checklist
- Highlighter/Pencil/Pen
- Hanging folders & labels
- Manila folders
- Marker
- Note Pad
Step 2: Create a home for your tax information
Will your tax home be in a file drawer? A separate filing box? Or maybe an expanding file for portability?
Regardless of how your tax information is kept, it is important to make sure it is in one place and easy to access . If you have to hunt for your tax files, you won't use them like you should.
If you have a business, it is important to keep the business information separated from your personal taxes. You can duplicate the system with folders and even have your business and personal tax files in the same drawer, but organize the information in a way that makes it easy for you to know what is personal and what is business. Try color-coding the files for easy separation.
Step 3: Make file folders to organize your taxes
One of the major time wasters and stressors in filing taxes is looking for all the receipts and supporting documentation. Creating a home for the needed paperwork will allow you to find it when you are ready to file your taxes.
The files will look different for each person and possibly each year, based on what categories you need at the time. So it is important to keep the system flexible and easy to maintain.
Take a look at the following options to set up your tax files. Use the option that makes more sense for your taxes.
Option 1 : Organize your taxes with 1 hanging folder per year
Use one hanging folder and place multiple manila folders labeled by category to separate your tax information.
- Hanging Folder: Taxes 2006
- Manila Folder: Charitable Donations
- Manila Folder: Moving Expenses
- Manila Folder: Income
- Manila Folder: Medical
- Manila Folder: Home Business
- etc.
This system works for most households. If this is your first year in trying to organize your taxes, I recommend you start here and improve it from year to year. Keep it simple!
This is an example of my business files from Tax Year 2005.
There are so many things to remember. For easy reference, write on the outside of the folder what each category means for you specifically. Get this information from the checklist and add what forms and kinds of receipts belong here. This removes the guesswork.
The following picture is an example of my Marketing Expense and Car files. On the outside of my Car file, I wrote parking, tolls, and mileage. On the outside of my Marketing file, I wrote: brochures, promotional material, radio/newspaper/phone book ads, business cards, printing and postage for brochures and mailings. I knew I needed to save this information with these specific folders because I read through the instructions for the Schedule C Form and used the suggestions from TurboTax when I filed. If you don't find detailed enough info with the tax preparation checklist, I suggest talking with a tax professional, or use the information provided when filing with TurboTax or from the IRS online instructions for forms. Keep in mind, my example will look different from your tax folders, but hopefully you get the idea.
Option 2: Organize your taxes with multiple hanging folders
Use multiple hanging folders labeled by category with multiple manila folders labeled by sub-category to separate your tax information with more detail.
- Hanging Folder: Income
- Manila Folder: Income From Jobs
- Manila Folder: Income From Investments
- Manila Folder: Rental Property Income
- etc.
- Hanging Folder: Itemized Tax Deductions
- Manila Folder: Interest You Paid
- Manila Folder: Charitable Donations
- Manila Folder: Casualty and Theft Losses
- Manila Folder: Job Expenses
- Manila Folder: Other Miscellaneous Tax Deductions
- etc.
- Hanging Folder: Taxes
- Manila Folder: State and Local Income Taxes
- Manila Folder: Real Estate Taxes
- Manila Folder: Personal Property Taxes
- etc.
This system is recommended for people who want more separation in their categories because of the amount of tax paperwork, level of complexity, or for their personal need for more detail. This list was compiled from the tax preparation checklist mentioned earlier.
Option 3: Organize your taxes with pre-made tax organizers
There are several products that can help organize your taxes. I have not used any of them personally, but I want you to know what is available.
Tax Box Financial Record System
Tax Tabs Financial Filing System
FreedomFiler : This system creates a self-purging process and a rotation system you may find very helpful.
Option 4: Organize your taxes with Quicken or Microsoft Money
Using software to manage your finances is a BIG time saver if you have it set up appropriately. Since you have the checklist and have already identified the categories that apply to your tax situation, it will be a snap to set it up! You are going to use the SAME categories you learned about in Step 1.
At the end of the year you will not have to re-calculate all the receipts by hand. You can simply run a report and have the figures at your fingertips! Now, how cool is that?
I only recommend this system for those who are using Quicken or Microsoft Money consistently and are willing to set up the software with the same categories from the tax preparation checklist.
Even though you are using your computer to organize your tax materials, you still need to hang on to receipts and forms for supporting documentation, but organizing this paperwork is easier. Here’s what you’ll need:
12 Hanging Folders--One for each month (Jan-Dec).
1 Hanging Folder--Income
1 Hanging Folder--Tax :: General Info (for checklist, instructions, resources, etc.)
If you like looks of these tabs, check them out on M.O. Inc. I love being able to see the labels from the front, side, and back. They are so "clean" looking!
Step 4: Evaluate and improve
Take what you are learning from this tax season to make next year an easier experience. Keep a note pad near while you prepare your taxes and write down anything useful to improve or start your system. Ask yourself these questions:
- What did I have to hunt for?
- What would have made the process easier?
- What categories do I need to add or subtract for next year?
- How much time did I spend filing my taxes this year? What is my goal for next year?
- How can I organize my taxes even more?
- What would have made this experience more pleasant? For suggestions skip down to 6 ways to make taxes fun.
Step 5: Close out the tax year
Congratulations! You have successfully set up a system to organize your taxes. But what do you do after you have filed your taxes?
Depending on how much support documentation you have, you may be able to consolidate all your supporting documentation into one hanging folder labeled with the tax year. Staple the individual categories together to keep them separated. This allows you to reuse the manila folders next year, if your needs are the same.
You may decide to keep the files you have created as they are and begin anew for the next year. Each year will be its own stand-alone system. Use it as a model for the upcoming tax year.
Keep all past tax folders together. I keep mine in a separate drawer in our filing cabinet.
With either suggestion you will want to create a home for the next tax year to capture the receipts for Jan-April while you are working on the current taxes to be filed.
Step 6: Organize Your Taxes on a regular basis
I wish setting up the system was enough to organize your taxes! But it's not. You have to use it! I suggest every time you enter a receipt into your checkbook or Quicken/Microsoft Money, assign it to the appropriate category and place in your tax file. For me, Fridays are designed as my financial theme day. This day is set aside to enter my receipts, download transactions from my bank, and make sure I place the receipts in their tax folder. This allows me to do my taxes in a few hours at the end of the year, instead of the average 13 hours it takes other people!
6 ways to make taxes fun
Okay, so fun may be pushing it a bit, but you can definitely make it more enjoyable!
1. Find one or two new ways to organize your taxes and apply them.
2. Use colorful file folders or decorate a file box to store tax information or use pre-made tax organizers to get your paperwork in order.
3. Start the tax filing process in February. By beginning early you will not have the April 15th deadline looming over your head and you won't be tempted to file an extension! Having time to really process the information will allow you to pace yourself and do it when it feels right.
4. Set up a relaxing environment when you are going to organize your taxes. Have candles, tea, soothing music, or whatever else creates a nice space for you.
5. Have someone else do the taxes for you! Heck, you can even hire a bookkeeper to keep everything in order during the year. Keep in mind you will save money if you maintain a system to organize your taxes because it will require less of their time to sort things out.
6. Reward yourself with something nice from the money you get back from your returns. If you find you have to pay taxes, set up a separate bank account and automatically deposit money in it each month so you will have enough saved for next year. You will feel empowered and abundant knowing you can pay your taxes.
Resources to help organize your taxes
Ten Tax-Savvy Steps for After January 1
IRS rules for "How long should I keep my taxes?"
TurboTax : Includes checklists, new tax laws, and tips on maximizing your deductions. This web site will also help you identify forms you don’t need plus what forms you should keep and for how long.
ItsDeductible® : ItsDeductible® instantly tells you what your charitable donations are worth so you don't miss valuable savings! $19.95 stand alone software (for Windows Only) OR you can purchase Turbo Tax Deluxe, Premier, or Home and Business and ItsDeductible® is included.
NeatReceipts : The NeatReceipts SCANALIZER scans your tax-related receipts into your computer and organizes them by their appropriate IRS categories. This only works on Windows XP and 2000.
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