So you’ve filed your taxes (maybe), and you can now relax another year until April 17. (Yes, 2018 buys you an extra two days.). If you were one of the many people that waited until the last minute, or had to file an extension, let me reassure you that it doesn’t have to be that way!
Why do we put off our taxes until the last moment?
Well, that’s easy. It’s human nature to avoid anything unpleasant or that, quite frankly, we just don’t want to do. Someone, like myself, who falls into the Avoider Personality category, has two options: 1. Change your personality, or 2. Reduce the unpleasantness. I am going to go with reduce unpleasantness, since in my experience, personality changes are pretty impossible.
Putting a positive spin on something is one way to start reducing the unpleasantness. Think about the reasons why you should enjoy preparing for your taxes all year, as opposed to last minute. I don’t particularly enjoy the actual filing of my taxes (ok, I do just a little), but I do appreciate the results of preparing throughout the year.
- Keep track of how much money I made, saved and donated.
- I need to see how my business is doing.
- I want to know as soon as possible if I owe money or will get money back.
Let me specify that I may not like what the results are, but it’s important that I know this information. For example, I might be disappointed that I did not save as much money as I had hoped, but I can use this information to help me improve and plan for the future. As a business owner, I need to know how my business is doing. And the last one, well I am just impatient, and I want to know now! I want to get this over with and I don’t want to waste any time worrying about if I owe money, if I will file on time, if I will be audited, etc. I want to get this done, file those taxes, file my paperwork away, and move onto more interesting and fun things!
Now, let’s talk about reducing the stress and making this whole process easier.
The key is to keep your information organized throughout the year, so that when it is time to file, you are not frantically searching for receipts and statements.
I use the FreedomFiler system (yes, that’s an affiliate link) to keep my files organized, but you can use anything as long as it is a system that works for you. I learned about the yearly rotating system from FreedomFiler, and I really wish I had thought of it myself!
Here are my steps to setting up a
lazy simple filing system for your tax documents.
Set up a drawer or box for your hanging files. It doesn’t matter where, as long as it is accessible and makes sense.
Decide which categories you will need. Everyone will need at least one, and depending on your situation you may need a lot more. Here is a list of the categories that I recommend at a minimum:
- Income and Forms – all W2s, 1099s, other income, etc.
- Tax Deductions
I bet you thought it was going to be more didn’t you? Well, I did say at a minimum! If you are filing single, have no dependents and do not itemize, then that really would be enough.
For anyone that itemizes, you may want to break up your deductions into different categories, for example:
- Charitable Contributions
- Medical Expenses
- Non-reimbursed work expenses
- Business Expenses
- Rental Expenses
Each category will have it’s own hanging file. If you have a business dinner once a year, you could just put the receipt in a generic “Business Expenses” file. But if you entertain weekly or more, Work Meals & Entertainment will have it’s own hanging file.
If you own a business, your business expense categories will match what is on the Schedule C – use your best judgment as to what categories you will need, and if they will need their own folder.
If you are not sure about what categories you need, take a look at your latest tax return. Look to see what deductions you claimed, and what paper records were required. Don’t worry; you can always adapt your tax folders later if you are unsure. This will help speed up your tax preparation the following years.
Here is a photo of my tax files that I currently use:
The last step is to create a second set of duplicate tax folders. Yes, that’s right, the fun doesn’t stop here! Label one set “EVEN YEAR” and the other “ODD YEAR”. Doing so will allow you to keep tax receipts from last year separate from this year. Since we are now in 2017, place the ODD files at the front, and the EVEN files can be placed at the back of the drawer, or stored somewhere if you have limited space.
Each new year, simply swap the position of all “EVEN YEAR” and “ODD YEAR” folders. Move last year’s folders to the back or into a second file drawer, waiting safely until the time when you are able to prepare your taxes. After filing taxes, you will empty your tax folders and move all supporting documents into the tax archive (more about this later), allowing those tax folders to be reused the following year. There is no need to review and purge documents each year or set up new folders.
This filing system saves so much time and stress.
Because I am
lazy efficient, what I like about this system is how much time it saves me. Now that I am in the habit of filing right away, when it comes time for taxes all I need to do is lift out last year’s files and everything is already sorted. If you use an accountant, all you have to do is hand those files over to him. This will also save you money, because now the accountant will not be charging you for the time that was spent sorting through everything.
If you would like to save even more time by using preprinted labels, the FreedomFiler labels that I use start at $29.95 and can be purchased from their website www.freedomfiler.com.
Coming soon – I will be talking more about how to create a Tax Archive.
Sign up to receive this free guide How to Organize Your Vital Records, and find out which documents are important to keep and which are not!