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5 steps to get organized for tax time

Tax time creeps up on us — and before we know it, we’re paying for our procrastination. With this five-step system, though, we can stay on top of the process, which will ultimately be very beneficial. Start here and get productive!

No stress, no rush tax tips - get organized!


Imagine kicking back with your refund already in hand (yes, the early bird will beat the rush with the IRS) while all the procrastinators out there are still scrambling to dig up old receipts and complete IRS forms. The closer you get to that April deadline, the less likely you are to take the time and care to stay organized and do the job right. If you let yourself get stressed and rushed, you’ll end up in survival mode, just trying to make it through another tax year.

So with lots of time between now and April, let’s make this the year to get caught up, straightened out and financially organized once and for all. You can get a head start on the process. By putting yourself in tax mode nice and early, you can dramatically reduce the amount of stress in your life down the road.

Begin by getting your files organized. I recommend a five-step process, which I call my “5-P System”:

  1. Purge: get rid of outdated information
  2. Plan: map out your system
  3. Place: get everything set up
  4. Put: file in the appropriate place
  5. Purchase: hire out what you can’t do

Here’s how to use it:

1. Purge

Throw away or recycle any unnecessary duplicates, outdated draft copies, and otherwise unnecessary materials before they turn into a huge mess and an intimidating chore. When it comes to purging, it is all too easy to keep way too much. Unless you feel like perpetually expanding your office space, adding a room to your home, or continually buying more filing cabinets, here are some guidelines on what you can toss or shred, anxiety-free:

  • Airline ticket stubs (once the miles have been applied to your frequent flyer account)
  • ATM receipts (once they have cleared your bank)
  • Business cards from others (input the data into your contact management software and toss the cards)
  • Catalogs you didn’t request (if you want to buy something, you can probably find it online)
  • Credit card receipts (once you’ve reconciled your account, toss any that aren’t tax related, needed for a warranty, or might be returned)
  • Financial records (anything older than a year should be moved out and stored in archive boxes)
  • Greeting cards (those that serve no sentimental purpose or plain-vanilla variety)
  • Old calendars with “pretty pictures” (donate to a school or nursing home)
  • Old college term papers (how often have you referenced those?)
  • Old newspapers (old news!)
  • Old warranty manuals (for items you no longer have)
  • Outdated policies (if you no longer hold the policy, you don’t need it)
  • Stacks of magazines you haven’t touched in years (enough said)

2. Plan

Decide what you need to keep for taxes and have a clear understanding of what needs to be saved (and how long to save it):

  • Paycheck stubs (until you are sure your W-2 is correct)
  • Bank statements, credit card statements and bills that document deductions (keep for three years)
  • Tax returns (keep for six years)
  • Warranty info and receipts for big-ticket items (for as long as you own the product)
  • Receipts for IRA contributions (keep forever—it’s the government)
  • Investment statements (hold until six years after the investment is sold)
  • Home improvement receipts (retain as long as you own the house)

3. Place

Start a checklist of things that you’ll want to have on hand when you file your taxes. Some of these (your W-2, for example) won’t be available until after the end of the year, but there are others that you’ve been accumulating throughout the year. Keep a file folder marked “2007 taxes,” where you put all tax-related receipts as you come across or receive them. You might need more (or less) depending on your situation, but here’s a list of some documents that you should set aside after the close of the year:

  • W-2s from your employers
  • 1099-INT (for interest earned)
  • 1099-DIV (for dividends you received)
  • 1099-B forms (reflect transactions involving stocks, bonds, etc)
  • 1099-MISC forms (for any income from self-employment)
  • K-1 forms (if you have a partnership, small business, or trust)
  • 1099-SSA (if you receive social security)

Don’t forget about your deductions! Maximize your refund by making sure that you get every deduction you deserve. You’ll definitely want to do some research or consult a professional on this one, but some common deductions include medical receipts, receipts from charitable donations, education receipts, moving expenses, mortgage interest, and childcare costs. One deduction that is often skipped comes from clothing or used-item donations. Whenever you drop something off with the Salvation Army or a similar organization, always get a receipt. The value of the donated items is deductible.

4. Put

Move all old (previous year) tax returns and related receipts and documents to archive files in a safe, out-of-the-way place. I remove all files I want to keep for history (bank statements, credit card statements, charity donations, etc.). Then I put each year’s records in a white cardboard archive box, label it with the year, and store seven years worth of boxes in my basement. In my filing cabinets, I create new hanging files to replace these purged files (if I get audited, I don’t want my paper jumbled together). Keep only current information in your central filing cabinets.

5. Purchase

Once you have all your documentation assembled, get help! Hiring a bookkeeper is essential for me since I own a business, but I know several people who use one to help with all their receipts, statements, and bills. Your bookkeeper can compile a tidy and professional set of files that will make life much easier when you need to access financial records, either for tax time or otherwise.

If you have a semi-complicated life like we do with two working parents, childcare expenses, and investments, it’s definitely worthwhile to have a specialist do your taxes. Add in a few rental properties, a business, and education costs, and it’s a no-brainer to hire an accountant. Frankly, in our family, doing it ourselves is simply not worth the time and brain damage.

Use software. If you use a bookkeeper, he or she will want you to use an accounting software program like QuickBooks or Quicken (non-business version). If you don’t use a bookkeeper or accountant, you should learn to use the software anyway.

Imagine printing checks right to your printer with a few mouse clicks; looking up payments by name, date, amount, or number; balancing your checkbook without doing any math; never forgetting to enter a purchase in your manual bookkeeping system; and having automatic tax reports generated at the end of the year.

All this is possible, and more! Take a deep breath, buy the software, install it, and go through the setup wizard that pops up when you load it.

Breathe easy

Follow this five-step process, and you’ll be on your way in no time. You will be so relieved that you’ll never start your taxes after the New Year again.

Make it a productive day!

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