But, if you truly want to manage your taxes, the key is to make the good decisions and keep organizned all year long, not just on or around April 15.
It’s the middle of summer and most likely the last thing your thinking about it taxes. But, I wanted to take a moment to remind you that your taxes are generally being paid all year long. Which is why I wanted to share some tips for staying tax organized throughout the year.
The reality is most folks start thinking about taxes toward the end of the year, hoping to cash in on their refund as soon as the IRS starts accepting claims in January. Some, however, wait until mid-tax season, while others inevitably wait until the last few weeks to complete their tax filings.
Tax Tips to Help You Get and Stay Tax Organized All Year Long
Tax Record Keeping
When it comes to keeping records it can be difficult to know what to keep and what to shred. This is especially true when it comes to tax records. Often people will keep a shoe box full of receipts not knowing if it might become necessary to show as proof of a potential deduction.
It’s good to keep records that pertain to potential deductions, but how do you know what deductions you would or would not be eligible for? That’s where a good tax advisor comes in.
Identify Critical Records
You should have copies of the records from the previous years filing to see what you were eligible for. You can utilize those tax documents to help you get a handle on what you will need to track for the current year.
Potential Records to Track
- Medical Expenses
If you claimed medical expenses it means that you met the threshold for deductions. If you know that you will have similar expenses for the current year, then maintain those records.
- Homeownership paperwork
Whether buying or selling a home you may need to maintain specific records to show any income received. If the home is your primary residence you most likely will not have to pay capital gains tax on a home sold unless it nets a profit of over $250,000. But if you are selling investment property there may be tax penalty to pay. When purchasing a home you may have to pay tax penalty on income derived from cashing out other investments which you may use for a down payment. You also may be eligible to take a mortgage interest deduction. Generally, you will receive a notice from your mortgage company at the end of the year.
- Charitable Donations
If you make regular contributions to charities, such as church contributions, civic organizations or other not-for-profit groups you may be eligible for a tax deduction for those charitable givings. It is dependent upon the total amount donated and whether you have enough deductions altogether to be eligble to itemize. Maintaining good records of each donation made will be key to determining if you are or are not eligible to receive those dedutions.
- Additional Records
- Stock Investments
- Retirement Records
- Education Expenses
- Business Expenses
Choose a System & Stick with It
Whether you keep a file folder for receipts with a notepad listing your income and eligible deduction expenses or you keep a digital spreadsheet with scanned images of receipts does not matter. What matters is that you choose a system that works for you and that you can maintain well.
Once you have a system in place. Use it.
Set aside a little time on a monthly basis to document all the necessary documentation for the month. As you proceed through the year continue to make memo’s and notes in your selected system.
When the year is over and tax season begins, you’ll have everything you need to complete your tax filing process with ease. Remember that staying tax organized all year long will ease the frustration when tax time rolls around.