How To Make Doing Next Year’s Taxes Less Painful
If you’re like us, you probably spent the better part of the week ripping out your hair as you collected and combed through bank statements, pay stubs, and W-2s to get your taxes finished on time. (You sent in your taxes by yesterday, right?!?!) Since we don’t want to experience a similar last-minute meltdown next April, we asked Regina Leeds and Russell Wild, authors of One Year to an Organized Financial Life, for advice on what we can do now to make next year a lot less painful.
- Why clutter up your home with unnecessary paperwork? Once you’ve reconciled your bank statement each month (that means checking to make sure all of the transactions actually happened and the amounts are correct), feel free to toss deposit and withdrawal slips, as well as paid utility bills, provided you don’t work from home and plan to deduct a portion of these.
- Save receipts for all tax-deductible purchases. Figure out a system for keeping these organized, and stick to it, because sorting through hundreds of tiny scraps of paper at 12 a.m. on April 14 is no fun. Regina recommends getting into the habit of emptying your purse of receipts daily or weekly, and aggregating them in one specific spot.
- Not sure whether a certain spending is deductible? “If you work as a salaried employee, almost nothing is deductible,” Regina and Russell note. “But if you work on your own, almost everything is deductible!” Things like home improvements and auto maintenance might also count as deductible expenses. “You can never keep too many receipts,” the authors advise, and saving and logging them will give you control over your financial records. Mint and Bankrate are two web-based programs that might help you keep track of your income and expenses.
- Establish a method for keeping track of essential paperwork, from pay stubs and bank statements to insurance documents and medical bills. While it would feel nice to start fresh each year, throwing out bank statements and receipts once you’ve dropped your tax returns off at the post office, the IRS generally wants you to save this stuff for at least three years, though each state has its own guidelines.
- Make sure you can access past months’ bank statements at any time, especially if you’ve moved on from paper statements to e-statements, which can help reduce physical clutter. If you store them on your hard drive, back it up on a regular basis – try using online storage like Mozy, which is free up to 2GB.
- Keep tabs on your finances year-round, because filing your taxes on April 15 is simply the grand finale. Make all charitable donations and big-ticket purchases that are deductible (i.e., buying a new car for business purposes) before December 31, and all retirement plan contributions before April 15.
In short, don’t sit back, relax, and do nothing for the next 364 days … unless you want to be cursing yourself once again at this time next year.