TAX PREP: EASY AS 1 - 2 - 3

Do you get wet under the arms when you think about doing your taxes? 
Here are a few tips for making the process a little less daunting.

Get a cup of coffee (or wine if necessary).  Plan to separate the job into a few separate sessions
Gather together all the tax related documents you’ve been saving throughout the year as well as a copy of last year’s taxes. This can include pay stubs; bank, loan, retirement account or mortgage statements; assets sales receipts noting gains/losses (such as stocks, vehicles, or residential property); expense or deduction receipts; insurance or annuities; and interest paid/interest deductions, such as student loan interest.

Call your CPA to schedule your appointment. This will give you the deadline by which to get the job done. Pat yourself on the back. You’ve taken the first step.

Next you need to clear a big work surface or plop yourself on the floor. If you’re on the floor make sure the dogs and cats aren’t going to trample over your work.
Now divide the papers into 3 piles.
  • Pile 1: Everything related to the IRS and your state tax agency including last year’s tax return. 
  • Pile 2: Everything related to your income. 
  • Pile 3: Everything supporting your deductions.

Great Job! Refill the coffee cup.

The good news is you don’t have much to do with Pile 1. Just paperclip the pile and put a sticky note on it saying “Ready for CPA”. The CPA is best trained to deal with this pile.
Pile 2 is usually pretty easy, too, unless you are a rock star with tons of royalties or other sources of income. Compile your W-2’s, 1099’s and year-end brokerage statements. If you are self-employed, you will need to calculate your gross income from goods and/or services.
Check last year’s tax return (Pile 1) to make sure you haven’t missed any sources of income.

Now is a good time to end this session and schedule the next one on your calendar. Give yourself kudos for getting this far.

Session 2: 

Pile 3: Clear the decks and shoo out the dogs and cats. Do you have your coffee (or wine) yet? You’ll need it for this session.
Pile 3 takes the most time. Deductions are where you can whittle down your taxable income. Pull out last year’s tax return to use as a reference of all your deductions. Using a large tablet, or spreadsheet, create columns for the different categories; i.e., mortgage or rent payments, medical insurance, doctors, prescriptions, charitable contributions, non-cash donations (remember when you de-cluttered the garage and donated the old cat carrier?) etc.

Starting with your credit card statements, go through month by month, line by line and pick out any deductible items and jot them down under the appropriate category. When you add them to your spread sheet or tablet, include the date, name and amount so you won’t have duplicates. Now grab your check register and do the same.

If you’re out of steam, take a break and schedule the final session on your calendar.

Session 3: 

Pile 3 (continued): Now that you’ve gone through your credit  cards and check book you might want to go through your receipts, if you save them, and look for anything that you paid for with cash and can add to one of the deduction categories. Locate the receipts for non-cash deductions and attach to pile 3. Grab your calculator and add up each column and jot down the total.

If you are self-employed, it’s a bit more work to get organized. Track down all receipts and documentation for business related expenses and mileage records. Remember office equipment, supplies and even the utility bills.

We recommend designating a specific file folder or envelope for the current year’s tax related papers and locating it in an easy access place. Put every receipt, IRS letter, tax form or other paper that you think might apply to your taxes in here as you come across it. This will make next year’s tax preparation easier.

Congratulations, now you can get up off the floor and walk the dog, feed the cat and know you are ready for your appointment with the CPA.

This post was created by the following NBOC members

Teri Mendelson of  Full Sail Organizing 
Laurie Light of  Light Touch Organizing