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Taxes – Organization & Preparedness

Updated: Jan 28, 2021

It’s a New Year and once again you find yourself scrambling to get everything together for the dreaded April 15th deadline.

Now would be the perfect time establish a tax record keeping system. This Get Organized Checklist for Your Taxes can help get you started!


How to Set up Your Tax Record System

Reducing your tax bill each year is the basic idea for most of us.  The most effective way to that is to have a good system in place all year.

For individuals, the tax year runs in conjunction with the calendar year; so January is the perfect time to set up your system. You have to find a system that works best for you, so long term you keep up with it.

Here’s some Simple Strategies to help keep you Organized

Designated Space

Figure out WHERE you’re going to store all of your tax documents. Make sure it’s easily accessible and convenient so that you don’t end up putting off filing paperwork due to inconvenience.

Establish and Maintain an Income Record Keeping System

ABSOLUTELY one of the most common mistakes in filing taxes, whether you’re W-2 or 1099 is failing to report income; and it can be costly.  It’s important to keep track of your own income so that you can follow up on any missing documentation and audit your taxes right the 1st time.

No One EVER has said they enjoyed an audit. So lets establish a system to avoid that.

This system can be as simple or complex as what works best for you. A Notebook or a full on Quick-Books situation. Or, you might utilize an Income Tracking Sheet . Just make sure you record EVERY piece of income you receive (e.g. wages, tips, jury duty pay, gambling winnings, etc.). Come tax season, you can simply check off items as the tax documents arrive in the mail.

Create Files for Income, Expenses and Investments

Typically you have your standard filing system in any home or office, but you can use anything that suits the way you operate; I lean towards a portable filing system to help keep me organized, and also convenient when bringing everything into the CPA.

Keep your income tracking sheet inside the income folder. Then, throughout the year, you’ll add any documentation for income you receive (e.g. bank statements, pay stubs, receipts).

For expenses, you’ll likely need multiple files or folders. If you itemize, it’s a good idea to have one file for each major deduction category:

  1. Home ownership

  2. Charitable Donations

  3. Medical expenses

  4. Health insurance

  5. Childcare expenses

  6. Educational expenses

  7. Job-related expenses

  8. State, local and sales tax

  9. Miscellaneous

You can omit files for any categories you know you won’t incur expenses for (e.g education if no one in the family will be taking college courses or attending private school). Throughout the year add receipts, bills, statements, and canceled checks for expenses to the correct file.

In similar fashion, I recommend setting up two files for your investments:

  1. Deductible/tax-deferred investments

  2. Taxable investments

You’ll file your statements and confirmation slips in the appropriate investment file.

Use the printable checklist below to mark off each part of the system as you set it up.

How to Organize Your Documents to Prepare Your Taxes

If you follow the system outlined above, you’ll have all the documentation you need (aside from the forms that will come in the mail during tax season) to minimize your tax bill.

Because my focus was on helping you set up your system, not on gathering specific documents for tax preparation, you won’t find a detailed list of those documents here. You can, however, print a complete list of those documents here.

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