Tax day is approaching quickly, and if you don’t have your taxes done, it’s time to get started! I use a few simple strategies to make my tax preparation easy. Getting everything in order ahead of time will make filing your taxes simple, quick, and painless. If you are a finance nerd like me, it is actually kind of fun.
Organize All Year Long
You might not be filling in your 1040 every day, but spending a little time each day can save you a ton of time and work when it comes time to gather your deductions and receipts for tax time. This is my favorite and most useful tax filing tip.
I keep three files in my file cabinet for the types of receipts and transactions I need to track for my personal tax return, and each time I get a receipt that I need to track, I drop it into the right folder. Some people have different deductions, so your folders may vary a bit from mine, or you might just combine them into one folder.
- Medical Expenses – Medical expenses can be reimbursed through a health savings account, so knowing how much to reimburse and being able to prove you incurred those expenses to qualify for the HSA tax deduction is important. If you don’t have an HSA, you may also qualify for a medical expenses tax deduction, so you’ll want to track your medical expenses either way. Qualified expenses include doctor visits, prescription medications, and any tests ordered by your doctor.
- Charitable Donations – If you itemize your tax deduction, you will want a record of every donation you make throughout the year. I put the receipts for each non-profit donation in a folder so I can quickly add them up at tax time. You can include cash donations or receipts from donations to organizations like Goodwill.
- Business Expenses – Even if your business is not registered as an LLC, if you earn money from a hobby or side-business, you can deduct your expenses per IRS guidelines. I enter all of my expenses as they come in with my accounting program, but I also keep hard copies of every business expense by year in case I ever get audited.
Keep a Tax Forms File
Starting around mid-January, you will start receiving tax forms in the mail from your employer, bank, stock broker, and any place that paid you more than $600 in non-employee compensation. Some people just get one W-2 form, but others get a stack of 1098 forms, 1099 forms, and others depending on your family’s finances.
On January 1st, I put a new folder on my desk for the year’s tax forms. I always print hard copies and create an online backup just to be safe, as these are very important for tax preparation. Each time a new form shows up in the mail (or email), I put it in that file.
Keep Business Files Up-to-Date Monthly
Earlier in the article I briefly mentioned how I track my business expenses. To make your tax preparation easy, you should keep your business accounting up-to-date all year. I enter expenses as they occur, and enter income monthly based on bank transactions.
Keeping my P&L updated took some time to setup the first month, but now I update everything the first week each month and it only takes about 20 minutes per month. If I were to try to do this annually, I would spend much more than the four hours per year I currently spend on my books. Plus, I can better track invoices, revenues, and expenses with fancy one-click reports.
All of the information I enter into my accounting program goes into my Schedule C, which is an addendum to the 1040 for business income.
Get Started Today!
These tips will help you a lot next year, but this year’s taxes are due soon. Get started today so you don’t get stuck filing last minute on tax day!
Do you have any tax tips to keep things organized? Please share in the comments.
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