Wednesday, March 26, 2014

Five Steps To Organize Your Tax Preparation

Tax FormsAccording to H&R Block, 20 – 25% of Americans wait until the last two weeks before the April 15 deadline to do their taxes. If you’re part of the last-minute crowd, let’s talk about how you can organize your tax preparation to minimize your stress and get the job done. 

1)    Know what documentation you need and create a checklist before you do anything else. A little bit of research ahead of time will prevent you from coming to a screeching halt during your return preparation due to missing documentation. Check your income tax return from the previous year to see what documentation you provided – it may help you gather your information for this year. H&R Block has a handy checklist available online. If you use the services of a tax preparer, he should provide a list to you. Print the checklist and scratch-off anything that does not pertain to you.
2)    Designate one place as the home for the documents while you are gathering them. A poly project envelope or a document storage box will keep documents together and will prevent them from getting lost. Be sure to label the container and designate a special place to keep it. A handy place to keep tax documents as they’re coming in is where you process the mail. Tape the checklist to the envelope or box and check off items as they are received. By the way, you can go a long way to simplifying your work for next year by setting up a folder in your file drawer to store all of this year’s donation receipts and other tax documentation as they come in.
3)    Sort the documents as needed. In the simplest case –you file a 1040EZ—you won’t have enough documents to sort. If your situation is relatively simple then you can probably get by with an income folder and a deduction folder to store these respective documents. As the complexity of your situation increases, add folders only as needed to bring order to your tax preparation. For example, if you are a student with a lot of student loans and scholarships you may want to have a folder just for the educational income. 
4)    Pick a time to do your taxes or make an appointment to visit the tax preparer.  Double-check that you have everything that you need to file a return. If you are filing your own taxes provide some creature comforts.  Proper lighting, music, a hot cup of coffee and a snack can go a long way towards keeping you efficient. Take breaks to recharge your attention span minimally at ninety-minute intervals. If you have questions about filing, the IRS has an online Interactive Tax Assistant.
5)    After your taxes are filed, immediately store your copies of the return and documentation in a safe location along with the previous years’ returns. Do not wait to file away your return unless you enjoy headaches and panic attacks. Hopefully you’ll rarely have cause to retrieve your archived returns so you can store them in an area that’s off the beaten path - such as the basement – to open up space in your file cabinet. Don’t forget to label the file.Talk to your tax preparer for advice on how long you need to keep documentation.  The IRS has three years to audit you, but it may make sense to keep documentation for longer as indicated in this IRS post. CBS posted some plain-English guidelines for retention as well.
With a little research, a few simple tools, scheduling and some creature comforts you’ll get your taxes done in time. Setting up a few files this year will make your tax preparation even easier next year. It takes just a few steps to make life easier.
Find great organizing tools for this project on the Clear Spaces Pinterest Board:

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