Are you feeling stressed or anxious about tax season? If so, you're not alone. Since 2007, research shows that money is the top concern among Americans.
There's no doubt that taxes can feel complicated and overwhelming. Maybe, you find yourself scrambling at the beginning of April each year. Perhaps you end up owing way more to the government than you intended.
Regardless of your circumstances, there are ways to help mitigate some of the distress. Let's get into the top methods for staying organized this season!
1. Create An Organization System For Tax Documents
If you only have one job and receive a W-2 every year, consider your tax situation simple. You only have to save that form when it comes time to prepare your tax return.
However, as people grow their wealth, their tax filing process often becomes more complicated. If you have a business or work multiple jobs, you may receive numerous W-2s and 1099s each year. Likewise, if you have assets like real estate or dividends, you will also have additional forms.
Get yourself a folder and use tabs to separate each year's documents. After you receive your tax return, place that document under that year's tab. Keep this folder in a secure place like a fireproof home safe. As a bonus, if you use a tax preparer, they will love your organized folder. Most preparers bill based on time involved so this system should also save you some money on your tax preparation fees.
2. Label All Receipts
If you run a business, you probably already do this for your bookkeeper. However, it's smart to get in the habit of writing down each personal expense you also plan to deduct or itemize.
This practice helps both you and your accountant. You eliminate the guessing game of trying to remember what you bought last February.
Business Expenses: If you own a business, save all receipts related to your company. This includes monthly bills, invoices, products and inventory, and miscellaneous costs.
Childcare Expenses: To qualify for childcare deductions, you'll need to save the payments related to childcare.
Medical Expenses: You may be able to deduct your medical bills if the costs exceed 7.5% of your total adjustable gross income. Save all receipts related to appointments, copays, prescriptions, and other miscellaneous medical fees related to transportation or parking costs.
3. Scan and Save Your Receipts
After labeling, make sure that you store all your receipts in an organized manner. Let's be real - it's quite easy to misplace those tiny scraps of paper!
If you have a lot of receipts, you may want to invest in a receipt scanner. This useful device will make it much easier to save and track your everything. If most of your purchases are online, you can save the email confirmations in a folder. The cost of the scanner may even be a deductible business expense.
Remember that it's not enough to just have a scanner. Use it to scan in receipts as you receive them. It doesn't do you much good to wait until the last minute - you'll get overwhelmed and forget what came from where.
4. File As Early As You Can
You don't want to procrastinate on filing your taxes. Many people wait until the last moment, and then they risk rushing through the process and making careless mistakes. Don't let that be you!
You should receive most or all of your tax forms by January 31. Once they're in your hands, don't sit on them.
The earlier you can handle business, the better. You get the filing out of the way, which helps reduce your overall stress. Furthermore, early preparation gives you time to plan ahead and prepare if you do owe.
5. Keep Both Hard and Electronic Copies
Paper documents can get damaged and lost. In general, only keeping hard copies isn't reliable when it comes to long-term recordkeeping.
As a general rule of thumb, you should scan all receipts and tax forms into PDFs or other online files. Make sure that you use password-protective measures for these documents, as many of them contain sensitive information like your social security number. Keep hard copies in a secure place like a home safe.
6. Use Automatic Software
Nowadays, there are many programs to help you stay organized and on track with your taxes. Rather than playing catch-up come tax season, it's smart to keep on top of your expenses throughout the year.
Quickbooks - Quickbooks offers extensive management of cash flow, profit and loss, and invoicing. The software works by connecting with your credit card and bank accounts. You can even sync your data with your accountant.
Expensify - Expensify tracks all expenses and receipts for your business automatically. You can use it to record items automatically, which codes into real-time reports.
Zoho Expense - Zoho expense scans all receipts, manages corporate cards, and automates expense accounting. They also offer a free plan.
7. Hire An Accountant
Yes, you can do your own taxes, and millions of Americans file their own returns every year. That said, many people also make costly mistakes and miss out on finding lucrative deductions.
Unless you are an expert on tax code, there's a good chance that you won't understand all the ways to optimize your financial situation. However, a good accountant can help you with precisely that. More importantly, you can save yourself hours of time and frustration by handing everything over to a professional.
Most accountants allow you to request a quote directly. You'll just need to provide necessary information about your employment, investments, and overall financial situation
Final Thoughts On Staying Organized This Tax Season
Taxes are an inevitable part of living in today's society. Whether you love or hate them (who loves taxes?), they aren't going anywhere! That said, they don't need to be complicated, stressful, or time-consuming.
At PFJ Tax, we can help you with all the heavy lifting. And by letting us focus on your tax situation, you free up time to focus on what matters most to you. Ready to get started? Contact us today!