You’ve sat at your desk and you’re trying to figure out how to organize your taxes — maybe later than ever before. For some it’s a painful process that we take care of only to avoid hefty late fees and a trip to the slammer!
To help take the pressure off, we talked to accountants for their tips on organizing documents and receipts for this year and going forward—so that next tax season is stress-free!
If you’re reading this you may be one of the millions who will be filing their taxes by July 15, or perhaps you’re just catching up in a normal tax year and hope to have your paperwork postmarked no later than April 15.
Either way, it’s never too late to get organized and make big tasks, like completing tax forms and sorting related documentation, a lot easier.
How to Organize Your Tax Records
For a lot of people, tax season can be a frantic last-minute scramble to find and collect all the documentation for an upcoming appointment with an accountant or to file a simple form on their own. Maybe that’s you, and every year you swear you’re going to be better prepared. Next year.
Here’s how you can get started. Now.
You can start by setting aside a special place for anything tax-related, from a 1099 income form for independent contractors, to a W-2 for employees. This way you’re going to be organized over time and ready with minimal effort when you have to gather information for either an accountant or to file a simple form on your own. More importantly, this forethought prevents you from under-reporting your income, which seems like a common concern, since overall 30% fear making a math mistake on their taxes, according to a 2020 tax survey from WalletHub, a personal-finance website.
“Designate a spot where you keep all your documents. It could be a dresser drawer or shoebox; it doesn’t make a difference as long as it's all in the same place,” said Maud Darlene Hicks-Robinson, a tax professional in Florida.
There are a lot of great options for organizing, so you can choose one that fits your style. It can make doing taxes more bearable.
“People get overwhelmed and they don’t want to do their taxes,” said Hrant Bedikian, an accountant and business owner of A&A Accounting in Southern California.
Experts advise clients to set up a file folder where they can keep all tax documents together, and going digital offers even more easy ways to do it.
• Of course you can use a desktop file with enough tabs for your needs, and every time you get a receipt add it right away.
• You can also consider scanning your receipts and adding them to a computer folder. There are several applications such as Scanner Pro that make it super easy to convert receipts to PDF files using your smartphone.
• You may not have thought of this last suggestion: set up an email address you only use for forwarding scanned tax forms and receipts. This way the documents aren’t going to your personal email, where things might get lost in the daily shuffle.
• You can also make notes on checks and some online financial websites for spend categories, such as “work from home” for a new desk and monitor you want to deduct.
• Also add income and other needed information to a spreadsheet you’ve created for your taxes!
Keep in mind that filing your taxes, and how much you pay, can change with your circumstances. If you get married and decide to file jointly, you will have to work to coordinate reporting, and paperwork tracking systems. Couples who’ve said “I do” will likely also find they pay more in taxes than when they were single. If you have a baby you will want to report that and can benefit from a tax credit. Finally, if you get a promotion (congrats!) or find a job, your income and reporting will change, and so will the taxes you pay, especially if you get bumped into a higher tax bracket. Consult your tax professional or closely study the tables if filing on your own to make the appropriate adjustments.
If you planning on filling your taxes on your own, Hicks-Robinson says the Taxpayer Bill of Rights may allow you to amend your income tax return by filing a 1040-X form to adjust your income or deductions to correct any calculations errors. An amendment typically has to be done within three years of the filing.
How to Organize for Small Business Taxes
If you work for a company, you shouldn’t have too much trouble finding your tax documents showing your income. Companies either send this paperwork to their employees’ homes or make them available online to download. But being a small-business owner can be challenging come tax season, and especially with a complex business, Bedikian said.
“For some it takes months to prepare and for others it could be done in a couple of hours. With someone who is self-employed you have several different itemized deductions,” he said.
As the owner of a tax accounting and financial services business, he has first-hand experience of the detailed process. When helping small business owners, Bedikian offers his clients some options to keep their paperwork in order throughout the year.
For Bedikian and his clients creating a spreadsheet, or using accounting software or apps is necessary. He creates a spreadsheet file for his customers early on so they can do the bookkeeping themselves throughout the year, or alternatively to create and maintain the spreadsheet throughout the year for his clients.
Either method, Bedikian said, requires his clients to be meticulous about keeping their receipts.
Hicks-Robinson said a lot of those who work in gig economy industries, such as rideshare drivers, don’t realize they are self-employed.
As the owner of H & R Financial Solutions in Florida, Hicks-Robinson advises they keep receipts for everything related to their work, from the car charger they bought for the clients to the snacks they share, car washes and mileage. All of that can be itemized as business expenses.
If you’re reading this in 2020, you know this tax season has been unlike any other. With most of the nation under stay-at-home orders just before taxes were due, Hicks-Robinson said she was able to continue helping clients by going entirely virtual.
For those who want to share digital documents, Hicks-Robinson advises they work with a provider that has set up an encrypted system for uploading tax documents, which his more secure than emailing.
If you plan on filing on your own, make sure to visit the IRS for the forms to be able to file electronically.
“It doesn’t matter where you put your forms, just be organized with the paperwork,” Hicks-Robinson said. “For me, it’s enjoyable being organized and that way it’s not stressful finding those documents.”
What to Bring to a Tax-Preparer Appointment
• Proof of identification (photo ID)
• Social Security cards for you, your spouse and dependents
• An Individual Taxpayer Identification Number (ITIN) assignment letter may be substituted for you, your spouse and your dependents if you do not have a Social Security number
• Proof of foreign status, if applying for an ITIN
• Birth dates for you, your spouse and dependents on the tax return, if applicable
• Wage and earning statements (Form W-2, W-2G, 1099-R,1099-Misc) from all employers
• Interest and dividend statements from banks (Forms 1099)
• Health Insurance Exemption Certificate, if received
• A copy of last year’s federal and state returns, if available
• Proof of bank account routing and account numbers for direct deposit such as a blank check
• To file taxes electronically on a married-filing-joint tax return, both spouses must be present to sign the required forms
• Total paid for daycare provider and the daycare provider's tax identifying number such as their Social Security number or business Employer Identification Number
• Health Coverage Statements
• Copies of income transcripts from IRS and state, if applicable/p>