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?

Get Ready For Next Year's Taxes

Tip #250 - Get Ready For Next Year's Taxes. April 15 has come and gone, and I'm sure many of us are not sad to see it go because it means we have 365 days to worry about next year's taxes. Or do we? Well, technically we do. We can put the tax forms away, not worry about withholdings or charitable contributions or deductions or anything until nexzt year. But if we are smart and want to minimize the amount of taxes we pay, we should start planning for next year's tax return. That means getting out the tax return that we just completed and reviewing it.

Did you overpay by a lot this year each pay period and get a huge refund? Or did you underpay and owe a penalty? Then go back to your human resources department and fill out a form to change your withholding. Did you keep lousy records of your charitable contributions and therefore not take full advanatage of this deduction? Then set up a file or some kind of recording system to keep track of your charitable giving. Did you pay January's mortgage bill on December 31 to take advantage of an advance tax deduction? Make a note on your planning calendar to do so in 2010.

These are just some examples of some tax preparations that you can start to do now in advance of next year's tax return. Now is the best time to do it as your return is fresh in your mind. Write down the items that you want to change or keep better records of. Look at what areas of your tax return you think needs more research (for example, IRA deductions). Some changes can be made immediately such as adjusting your withholdings. Others may need to take place throughout the year such as paying quarterly taxes on time with more accurate estimates so you don't owe penalties. Others may involve keeping better records. Take an hour or two this week to look through your return. Take some notes or write reminders on your calendar and then you can forget about your taxes until next year - maybe not until April 15 but at least until January 15.

In Real Life (IRL) - I just finished my taxes tonight. No, I wasn't tardy in doing them. I actually did our federal taxes in late March. But in Virginia our state taxes aren't due until April 30 (which I actually think is awfully nice of them to give us two weeks after the federal is due to do them), so I just did them today. After going through the process of completing them, I came up with a list I need to change for next year.

1. We got way too much back in tax refunds. While the money is always a nice "gift" each spring, it would be much better to have this money to use throughout the year - invested and earning interest. I need to have my husband change his witholdings at work.
2. Keep better track of school expenses. Every year around tax time I need to call the school and ask them for the amount I have paid to them. If I kept better records, I wouldn't have to do that.
3. Get eBay reports throughout the year rather than just at year end. If I run them after each month ends, then it saves a lot of time at the year-end.
4. Keep track of ALL charitable contributions. I know I missed a few of them this year because I did not have receipts for them.

Those are just a few things that I need to change in the coming year as far as taxes go. Have you reviewed your taxes and vowed to make changes or improvements? If not, now is a good time to do so.

Prepare Your Own Taxes

Saving Money Tip #77 - Prepare Your Own Taxes. At least try to do them. It is a great lesson in how taxes are computed. And you might just find out that yours aren’t that difficult to do. By doing them yourself you may be able to save yourself hundreds of dollars. And if you are not confident in your ability to calculate your taxes properly, why not give it a try before handing them over to your tax preparer? You may come up with the same calculations as your tax preparer does. And then you know that you have the ability to do your own taxes and can do them yourself next year.

If you want to take a stab at your taxes, you can do it primarily one of two ways:
1. By hand on paper, using a calculator and your head to do the arithmetic.
2. You can use one of the popular tax preparation software programs.

Personally, I think doing them by hand the first time is a great lesson on how to do your taxes. But I’m weird that way. I like math. Most people would probably bypass the “by hand” method and go right to the electronic or computer method. If you don’t want to try them by hand, then go online and look at the different types of software available to do your taxes. The three most popular types of tax software are TurboTax, TaxCut, and TaxAct. TurboTax is the biggest tax software program. TaxCut is produced by H&R Block, and TaxAct appears to be a free tax software program for those with simple taxes. I have always used TurboTax so I will mostly talk about that program. But if you want, you should look into the others to see if they are more appropriate for you.

If your finances are relatively straightforward and simple – income from your employer and some money in a savings account and no itemized deductions – then you may be able to get away with doing the 1040EZ form. You can go to the store and buy the TurboTax (or Tax Cut) 1040EZ package or you can do any of the three online tax programs for free! If your taxes are more complicated, go into your bank's or financial institution's website to buy the TurboTax program. By going through your bank, credit union, or mutual fund company's website, you will often get a discount of at least 20% on TurboTax. Make sure you check each one you have an account with because some financial institution's discounts are better than others.

The first time you do your taxes will generally be the hardest. You have to figure out where everything goes and sometimes the IRS jargon that is used may not be very clear. If this year is the first time doing it, make sure you pull out last year’s taxes to compare it to. That will make the job much easier. After completing your taxes the first time, it becomes much even easier in the future. For the most part, you can look at which lines you completed in previous years and fill them in with updated numbers. And when doing them online most of the information is already pre-filled for you. And you will see a line-by-line comparison of this year to last year. So if something looks out of whack, then you can spot it pretty easily.

If your taxes are complicated because you own a business and have employees or have inheritances and other complicated matters, then it may be wise to use a tax preparer who is knowledgeable on which deductions to take or how to keep your taxes the lowest within the guidelines of the law. However, I still think it is a good idea to at least try doing your taxes yourself. You can start your taxes for free with Turbo Tax even if you don't follow through and file them yourself. If you have a business then you know best what is going on there so why not attempt it? But I especially think you should try doing your taxes if your income and investments are straightforward. Try taking a stab at them this year. You might find that your taxes are not complicated to do at all.

In Real Life (IRL) – I have been doing my own taxes since one year after I graduated from college. While I was in college, my dad still claimed me as a dependent. And my first year out of college, my dad’s accountant did my taxes for me. That was the one and only year the IRS sent me a note that there was a mistake!

Since then I have done my taxes myself. I’ve had it somewhat easy because each year my taxes have become progressively more complicated. It started out with straight income and a few investments. And then progressed to calculating capital gains and losses from stock purchases and sales to itemizing deductions from mortgage interest, adoption credits, and having a small eBay business. Fortunately I was able build on the knowledge that I already had from previous years. If I started doing my taxes when they were already somewhat complicated then I may not have finished. But as mine got progressively harder, I’ve been able to learn each year as I go along.

The first year I did my taxes, I did them by hand. And because of that experience I felt like I got a full understanding of where the numbers are pulled from on the various forms. After that I started buying TurboTax in the store. I started with the EZ edition and as the years went by, I moved up to the deluxe edition. A few years ago, I started doing the TurboTax online by going through Vanguard or similar websites. This year Vanguard offered me the best package for the deluxe edition for only $19.45. By doing them online, it's not only convenient, but the refund (if you're getting one!) is often directly deposited faster than if you mail in the return. In general, my taxes are more difficult to complete than those who don’t itemize their deductions or have investments with capital gains (or losses as is mostly the case this year). But they are not as complicated as others who have their own businesses with employees.

I think there are people out there who have very simple taxes to do but are too scared to do it themselves. And they are willing to pay several hundreds of dollars for someone else to do them for them. I say this because recently someone in my Mom’s Club asked for recommendations for a tax preparer. She was looking for someone cheaper than she used in the past. She said her taxes are pretty simple and that she paid $600 last year! That sounds like an awful lot to me for simple taxes. That’s why I think everyone should at least try to do them themselves. If you have nothing complicated, TurboTax or a similar program walks you through the steps. And you can save a lot of money while you are at it. And if your tax situation is more complicated, then doing them is still a good exercise even if you don't file them yourself. Try it!