Getting Ready for Tax Time

Within a couple of weeks, we’ll start to see them arriving in our mailboxes…W-2s, mortgage interest and real estate tax statements, 1099s and other assorted tax-related documents.  Yes, it’s that time again.  Don’t let April 15th creep up on you.  Resolve to spend a few minutes within the next week to get yourself ready for income tax time.  Here are some simple tasks you can do now to help you avoid many of the typical tax-filing headaches.

Organize Now for Tax Time

1. Designate a place to store your tax records.

Don’t let these important documents get mixed in with the mass of bills and other junk mail.  Keep an eye out for any tax documents, then as soon as one comes in, file it in the place you’ve designated as your collection point. You can create a new folder in your file drawer, slide them into an over-sized envelope or buy an accordion file…whatever works for you.  Just be sure to nab them as they come in so when you’re ready to start your tax return (or gather them for your tax preparer of choice), they’re all together in one accessible spot.

2.  Decide who will do your taxes and how.

Take the time to decide this now, and then move in that direction.  Will you consult a pro?  If you don’t already have a tax professional in mind, find one as soon as possible.  Schedule an appointment in late February or early March.  The earlier you can get in the better.  After all, who do you want preparing your income taxes…a tax accountant who is rested and alert, or one who is stressed and exhausted?  Plus, setting a date will force you to get your ducks in a row before the last minute!

Thinking about using tax preparation software?  TurboTax, TaxCut or TaxAct?  Determine which will best meet your needs and go ahead and order it.  If your adjusted gross income (income less your allowable tax deductions)for 2007 was less than $54,000, you qualify to use the IRS Free File software to prepare your taxes online.  Speak Spanish?  They have a Spanish version too.

Still prefer the pen and paper method?  Think about what has changed in the past year that may affect your tax situation.  Consult the IRS web site and download any tax forms you may need that won’t be included in the packet the IRS mails to you this month.  (They include forms based on your past filing history).

3.  Look into electronic filing.

If you choose to go digital and prepare your taxes on the computer, take it to the next level and file your taxes electronically.  Why e-file?  The IRS estimates they can process forms that come in electronically in about half the time it takes them to process a hard copy form.  And you get a confirmation from them that your form has been received.  Get your refund even faster by asking for direct deposit, and the IRS will transfer your funds directly into your bank account.  Those that can use the IRS Free File software can e-file free of charge.  TaxAct does not charge for electronic filing, but the program doesn’t offer phone support.  Otherwise, the most common federal forms will cost somewhere between $10 to $40 to e-file.

4.  Consider any special expenditures you can deduct this year.

Did you donate a big-ticket item to a charity or incur expenses on-the-job that weren’t reimbursed by your employer?  Gather up any receipts.  Suffer losses due to theft, fire or flood?  Access your home inventory records.  Can you claim a child care credit?  Use this time to track down Social Security or tax-id numbers and address and telephone numbers. Did you buy a new home in 2007?  You can deduct points you paid at closing.  Make sure you have the forms and documentation the IRS will require to claim everything you’re entitled to deduct off of this year’s taxes.  If you use tax-prep software, you’ll be less likely to skip over any important tax breaks.

5.  Set up your tax filing system for next year.

How difficult was it to locate and gather your receipts and documentation to prepare this year’s taxes?  If you haven’t already developed a system to keep your tax records organized, take the time to do it now and save yourself some stress at the end of the year.  Find a method that works for you and stick to it. 

Some time ago, I read a tip from an organizational expert who uses a simple system. (Please forgive me for not naming the source…it was awhile ago and I can’t find reference to the tip now).  Anyway, I tried her system and it worked great for me. Keep a decorative file box on your desk and sock away any receipts that you may need at tax time.  At the end of the month, when you turn your calendar, take the receipts out of the box and file them into an accordion file you’ve labeled with sections for this purpose.   Then at the end of the year, tally up the receipts for each category and record them on an expense sheet.  You’ll have everything together to file your taxes or present to your tax preparer. 

Here are some of the categories to include in your tax receipts file:

• Charitable gifts (keep cash and non-cash receipts)
• Medical/dental
• Child care
• Business use of home
• Homeowner improvements
• Employment expenses

If you’re a child of the digital age, why not scan and store your tax receipts digitally?  NEAT Receipts will scan and organize your tax-related receipts by IRS category, then keep the running total of your expenses by category so you don’t have to do it by hand.  Another time saver!

Organizing your tax-related receipts and documents will help keep you from stressing out, making errors on your tax return, or missing out on deductions that can save you money.  Do what you can now to make the process less taxing next year! 

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