Monday, April 4, 2011
Organize Your Papers for This Year's Taxes
Tip #286 - Organize Your Papers for This Year's Taxes. Every year when January 1 or so rolls around, we start to think about our taxes. We begin to get envelopes in the mail on a regular basis that say "Important Tax Return Document Enclosed." And we start a pile of our tax documents. Then around February 1, the more ambitious of us start working on our taxes. And as we progress, we start searching for that little slip of paper the neighborhood trumpet player left with us that says we donated $10 to the high school band. And we start looking in our checkbook for all the checks we wrote to little Sadie's preschool. And inevitably at some point as we work on our taxes we have a nagging suspicion that we donated a desk chair to a local charity but never got a receipt for it, and we are suddenly making phone calls to organizations asking for slips of paper or lost statements. At least some of us are.
But why? It is so easy to start a folder or envelope for next year's taxes that everything tax-related gets put into as it comes in. It does not have to be sophisticated - a folder will do but something with sides like an envelope is better, so there is less chance of a small piece of paper falling out. Write on it "2011's Taxes" in big letters and keep it in an accessible place. What should go in it? Of course, each person's tax situation is different. And those who itemize their deductions would need to keep more receipts. Things that may need to be included are:
--Any donation slips you receive for donating material goods
--Any receipts you receive for donating money to charity
--Copies of your statement or checks that show you paid childcare
--Receipt of payments made to higher education
--Copies of medical payments not covered by insurance
--Travel expense receipts or a log of mileage for work you did for charity
--Receipts for home improvements that may qualify for energy-saving deductions
If you keep these all together throughout the year, it will be much easier when you sit down at tax time to do your taxes (or even if you hand over your paperwork to a tax preparer). The best time to get organized is as soon as you finish last year's taxes when tax paperwork is fresh on your mind. So if you have just finished your taxes or are about to sit down to do them this weekend, get a folder or envelope together for this year's taxes and start collecting the necessary paperwork.
In Real Life (IRL) - Organization is not one of my strong points. I tend to "keep things in my head" such as dates, activities, and such. And while I do pretty well with that system, my memory is nowhere near perfect, and I have forgotten several things from time to time. When it comes to taxes, a paper trail is more important than using one's memory, especially if it comes to getting audited. Fortunately, I have a husband who tends to be more paper organized and keeps all of our donations slips together. But there are other activities that my husband is not involved in so much (like writing checks to the kids' preschools) that I must take the lead in being in charge of.
Once I started selling enough on eBay to call it a business and declare my income I have had to be much more stringent on keeping all of my receipts and price records of what I purchase. Forgetting about trips to a yardsale or not keeping receipts from a thrift store only makes my job more difficult when it's tax time and causes me to miss out on legitimate business expenses. Having said that I am still not perfect when it comes to keeping track of all my personal charitable donations - the one I make in haste online for a friend of a friend or keeping track of my expenses that I have while working with a charity.
When I sat down to do my taxes this year, I found myself having to look up statements online to see if in fact I did make a donation to my college this year as I thought I had (I did, but misremembered the amount). And while I was looking up the statements I found another donation I made that I had completely forgotten about. Then I had to call the bank to have them send me old copies of statements that were not available online. Because of my lack of organization of paperwork, I had almost lost out on some decent tax deductions.
Also, if I had just kept track of my donations and expenses more thoroughly in the first place, I would have saved myself a lot of time and extra work. So for 2011's taxes, I have already set up a folder, and I am starting to add in receipts and log expenses in a notebook that I will keep inside so next year, my work at tax time will be much easier and more accurate.
How about you? Are you good at keeping papers organized for your taxes? Or do you wait until April to gather everything together and do some last-minute scrambling?