This is a guest post from Mike of CleverDude. If you like what you see here, please consider subscribing to his RSS feed.
Back in college, I had one W-2 each year, no investments or additional income, and I just took the standard deduction. I didn’t really need to think about taxes until tax time came around. But now that I’m older, things are a bit different.
We still don’t have the craziest tax situation, but I do have at least a dozen different pieces of paper that have important numbers, not counting receipts. I run two businesses, and both my wife and I have day jobs. I’m not the best organizer, and it’s beginning to show. And that’s why I want to share a little tip with all of you this tax season. Begin filing your tax-related documents NOW rather than waiting till next year.
Step 1 – Set up a filing system
For us, I have a single folder called “Tax Documents,” and whenever I get anything that could be considered income or a deduction on next year’s return, I stick it in the folder. For instance, receipts from business meals, website hosting, malpractice insurance premiums, and anything else that probably won’t get mailed as a single statement early next year go into the folder. Last year, I found that a single folder worked fine for us, but this year I’ll have to revise the system.
Since we’re now launching a third business (a nutrition consulting business, as my wife is a licensed and registered dietitian), and we’ve already had some expenditures, I need to begin splitting personal expenses from business expenses. That means a few more folders, and maybe some envelopes for the smaller items like receipts. There are pre-made systems for sale out there, but a manila folder will do just fine.
Step 2 – Create a reference sheet
It’s great that you’re filing all your stuff into one or a few folders, but how do you know what’s in there? Last year, since we only used a single folder, I just wrote what I added to the folder right on the front of the folder. I actually made categories like income, expense, investments, etc. and would just write in the document name or description in the appropriate category. Next year, I’ll probably do the same. But for those of you with more receipts and documents than us, you may want something a little more complex than a marker — but don’t think that you need to spend money on something! All you need is a sheet of paper or maybe a spreadsheet application to keep track of your documents.
Step 3 – Uh, I don’t think there is a step 3
The system you use doesn’t need to be overly complex. Actually, the simpler, the better. The goal here is to keep track of your records as soon as you receive them rather than letting them float around and potentially get lost. Keep everything tax-related together throughout the year and you’ll find tax time much less stressful each year.
So this year, if you found yourself scrambling to find all those receipts from last January, try out this method. I’ve learned that we each have our own ways to organize things, but the important thing is to at least do something!