Are you ready? April 18th is right around the corner and for most of us, that’s the deadline for filing our 2017 tax returns. There’s nothing I can say to make the process conceptually exciting (as in, “Yay! I get to file my TAXES now!”) but I can offer some suggestions to make the process a little less stressful.
If gathering the necessary documents felt like a scavenger hunt this year, take action NOW to streamline the process for next year.
You need a hanging file folder for each return you need to prepare. Label it: Current Year Tax Records. Voila! You’re done. Now, every time you get a donation receipt, a 1099-Div, or a W-2, you have a place to drop it. If your documentation is more than a standard folder can hold, get an accordion pleated one that expands to 3″ or 5″.
The same goes for documents you get electronically. Put them into an email file labeled, “Tax Documents” or if you use Gmail, slap a “Tax Documents” label on them and hit “archive” and they’ll be there waiting patiently when you need them.
If you get a blank donation receipt for items you drop off at a local site, make note of what you donated while it’s fresh in your mind. I would never remember what I got rid of a year ago on August 3rd if I didn’t list it right away.
I’m sorry, but yes, it really is this simple. Hey, don’t roll your eyes at me, I’m the voice of experience! I prepare a tax return for me and hubby, and that return includes income property. I also prepare returns for each of our grown kiddos as well as for my elderly mom. On top of that, I must gather the appropriate paperwork for the accountant to prepare my corporate tax return.
If this system didn’t work, I’d be running around like that proverbial chicken with its head cut off. Instead, all returns were filed by the middle of March.
It doesn’t matter if you do your own taxes or have them done for you. However, if you use a professional, don’t be that person every accountant hates to see coming with your over-stuffed shoe box full of random bits of scrumpled papers. Eliminate that hot mess and you might save money on preparation fees, too!
I work with many clients setting up filing systems and sorting through years and years (and YEARS!) of accumulated papers. The question I’m asked most often is, “How long should I keep paper stuff?”
As a former accountant, I’m comfortable answering. I add this disclaimer, however: when in doubt, seek advice from your tax preparer or financial advisor.
I recommend shredding documents you get rid of in these common categories:
Utility bills: Unless you take a home office deduction, there is no reason on God’s green earth to keep these. You can access your history online. I’ve automated utility bills so I get ZERO in the mail. The only papers in my “utility bills” folder is a bill from each provider with our account number and their emergency contact information.
Bank statements & credit card statements: In theory, you get your statements, you reconcile their numbers with yours and… that’s it. You don’t need to keep the statements. Pull copies of tax-related cancelled checks and pop them in your “tax return info” folder.
Investment statements: It helps to understand why you keep the ones you keep so you can better understand why it’s ok to get rid of the rest.
Certain investment data is necessary for preparing a tax return. BUT. You only need the annual statement that summarizes investments you bought or sold, interest and dividends you earned, along with details of any contributions or withdrawals to/from IRA accounts that are reportable on your tax return.
Therefore, you can shred monthly or quarterly statements from investment accounts when the new ones arrive.
Keep statements that show purchase details until you sell an investment; you’ll need purchase cost and sale price to calculate a capital gain or loss on your taxes. If your investments have been with the same firm, they’ll have that historical data. If you change firms, give them purchase information for any investments you’re transferring so they have it for future reference.
If the concept of shredding any of these on a monthly basis is too far outside your comfort zone, try keeping one year’s worth and then shred.
Consider signing up for electronic statements for any of the categories I’ve mentioned. (resist the temptation to print or you’re right back where you started!) You can still file e-statements in an electronic folder, but it significantly cuts down on the daily flow of paper into your life, and who wouldn’t love that?
I recently posted this tip on the Home Solutions facebook page:
Here’s an idea: before you file something away, ask yourself, “Why am I filing this? Do I actually need to keep it for anything?” If the answer is no, work on breaking that habit. It’ll save you time, and it’ll save space in the file cabinet. One good example for many folks is utility bills. Everyone files them, but nobody knows why.
When I present an organizing seminar, I ask folks in the audience, “How many of you file your utility bills after you’ve paid them?” and invariably, hands shoot up all over the room. When I ask them, “Why?” I am routinely met with a roomful of shrugs and quizzical looks.
Sometimes we do things out of habit without re-examining the reason, and the reason for keeping certain papers in our file drawers may be overdue for review.
Perhaps you keep utility bills because you take a home office deduction on your income taxes. However, you can see an on-line history of utility bills paid, so again, why keep the monthly statements?
I stopped getting utility bills, bank and investment statements, and car loan statements in the mail and instead, receive them all online. I reconcile my accounts and pay my bills online, too, so there’s no need for me to print these statements.
If that’s too far out of your comfort zone, how about keeping one year’s worth and shredding with the start of a new year?
When your year-end investment account statement arrives, it has all the information for the year and you no longer need the monthly or quarterly statements, right?
Once you see the transactions on your bank statement, you can shred ATM slips and deposit receipts.
At the end of the year when you get your W-2, you can shred your paystubs.
In my July 23rd blog post, I talk about receipts – which ones to keep and which to toss.
We are inundated with an onslaught of papers on a daily basis. If we reduce the quantity of what we get and what we file by eliminating things we’re keeping out of habit rather than actual need, it’s another small step towards organizing and simplifying our daily lives.