Three year end tasks to take the edge off tax time

Now that 2009 is over, don’t wait until April to start getting your taxes in order. Chicago Sun-Times columnist Terry Savage suggests three tasks that you can do now if you plan to itemize your deductions.

If you don’t currently have a system, don’t worry. All you need are a few plastic sandwich bags and a shoebox:

  • Put all those deductible receipts in separate baggies — taxi receipts, dues and subscriptions, unreimbursed business expense receipts, and the letters you’ll receive certifying your charitable donations.
  • If you’re banking online, print out your check register. Or download the year’s banking into a Quicken file. Take all your monthly statements, put an elastic band around them and throw them in the shoebox as well. If you’re still using a paper check register, ask your bank for a new one to start 2010. Put the old one in the shoebox.
  • Prepare a file for your year-end investment statements, which will start arriving in January. The ones from your 40l(k) or IRA won’t have an impact on your taxes, but it’s nice to keep them all together. That’s also where you’ll stash your W-2 from work, and any 1099 forms that arrive in January, showing interest or dividends or capital gains.

The best part about doing this now is that it serves two purposes. First, when April rolls around, you’ll be prepared. Second, you can start 2010 with drawers free of receipts.

12 Comments for “Three year end tasks to take the edge off tax time”

  1. posted by chacha1 on

    I wouldn’t actually advise keeping W2 and 1099 information with investment statements. I try to keep only tax-return documents in the tax-return envelope.

    I’d suggest going to irs.gov and printing out dummy forms and clipping the income reports or relevant receipts to those as you’re sorting. Then everything is ready when it’s time to sit down and fill in the forms.

    The receipt thing is such a hassle, I tried multiple systems and finally seem to have found one that works. I have a plain manila envelope (9×12 size) and it sits in a designated spot. In the envelope is an 8.5×11 sheet of blue paper. On one side of the paper are nondeductible receipts; on the other side, receipts for tax purposes.

    At the end of the year, I go through the nondeductible receipts and keep only those I might need for renter’s insurance backup/updates. The tax-relevant receipts will get sorted into categories and scanned using Neat Receipts.

    The advantage to scanning is that a lot of receipts are printed using heat transfer and the receipts fade. If you scan them, should you ever need to produce them you’ll have a good copy. (Some would probably prefer to scan as-you-go, but I don’t have enough material to make that time-effective.)

    Obviously this little tip only works on a going-forward basis! But some may find it helpful.

  2. posted by Mletta on

    I had to laugh when I read how you keep receipts in plastic baggies. And here I thought all these years that I was the only one who did that! I took a lot of flack for it and now I can say: See! The expert does it too!

    The real key for me and many others who do schedule C deductions and/or itemized, is to spend time during the year going through and categorizing the receipts.

    We use Quicken to track a lot of those, but not for cash receipts.

    If you even do it quarterly, you’ll be way ahead of the game.

    Everyone we know who does an extension, does so because they just don’t have the time to sort/categorize expenses, etc.

    And if you’re self-employed and travel for business, you need to create your own “expense reimbursement” forms or ways to track and then do the tallies ASAP. Otherwise, you really will forget and lose out on legit deductions, etc.

    We have a small biz and doing the actual tax forms (even if we have to do a couple versions to see what is best in terms of deductions, for example) is nothing time-wise compared to sorting the receipts and doing the tallies.

  3. posted by Mama T-Mag on

    “when April rolls around”?
    Don’t wait! Do your taxes as soon as you have everything! You get your money back faster, you don’t have time to misplace things, if you are missing something there is time, and you won’t be waiting in line at 11:55 to mail your return because you couldn’t get online when millions of others also waited till the last second. It’s better for your stress levels to get it done and relax. Then you can really tweek any system you have for paperwork so it works best for you.

  4. posted by Mike on

    @Mama T-Mag

    Agreed, very smart to do taxes as soon as possible. If my employer put my W-2 form in my hand any sooner than 1/31 each year, I’d be ready to roll on New Year’s Day. You get your refund much, much sooner.

    This is the year for me to Unclutter documents… the scanner is ready and the shredder is warmin’ up. Here goes nothing! :)

  5. posted by Amy on

    Awesome advice and I will be doing just that in the next two weeks! I actually make sure all mine kept safe in a heat resistant pouch so that the fading process doesn’t kick in. I just have to catagorize everything and I should be good to go. Thanks for the early start reminder!

  6. posted by Richard | RichardShelmerdine.com on

    *groans* I dislike the sound of filing tax and am 20 so have no idea what to do. At least I’ll learn something. Nice reminder.

  7. posted by The Plaid Cow on

    This is timely advice–for filling out your 2010 taxes. Don’t wait until the end of the year to sort out all of this paperwork–keep up with it and put the papers in a folder all year long as they come in.

  8. posted by BillyOceansEleven on

    Echoing the comments about not waiting until April to file your return. The sooner you file the sooner you get your refund, and the processing will take a lot less time if you file early.

    In addition to the three items you pointed out, I have two big things I do to prepare:

    1) Make a list of all the tax documents you expect to receive. Include all the W-2s you expect, all banks and brokerages that you have interest and/or dividend income from, mortgage interest statements, and any other 1099 income you might have (government/unemployment benefits, income from side businesses, etc.). As you receive documents check them off you list and put them in a tax prep folder. This way you know when you have received everything and if you need to followup on missing documents.

    2) Gather charitable donation receipts now. Make sure you include records of small donations (walk-a-thons, etc.) and household good donations to Goodwill and the like. Go ahead and value the household good donations using tools like itsdeductible.com and attached the valuation report to your receipt. Extra tax tip: it is always best to use something like itsdeductible.com to value household item donations as most people underestimate the value of their donations, plus if there is ever any question on the value assigned to a donation you have some justification for that value.

  9. Profile photo of

    posted by Lori Paximadis on

    If you file a Schedule C, I think it’s *critical* to get your receipts categorized and filed no less often than once a week. That way, you remember what each and every expense is exactly, and get that detail into your system. I file two Schedule Cs (two different businesses), and had a couple of years there where I slacked off and didn’t do this until a couple of days before I had to file. What a nightmare, and oh, the stress of trying to remember what was what. After the last time, I swore, never again.

    I just take a couple of minutes to enter everything into Quicken once a week (I set it up as a recurring to-do item in Things). I took some time a couple of years ago to set up expense categories in Quicken that make sense to me and map them to the categories that show up on Schedule C, and it makes tax time so much easier. Well, not the writing the big fat check part, but the paperwork, anyway.

    Those who are due a refund would do best to file as soon as possible. Those of us who end up owing, even on top of estimated payments, can still do their taxes early but not file until the due date to eke every last piddly bit of interest out of their money. A dime’s a dime, you know. ;-)

  10. posted by Gisele on

    I make a file in my file cabinet at the beginning of the year and put in all the tax-related paper as I get them during the year. (excise tax bills, real estate tax bills, donation receipts, etc.) I still have to wait for W2s and such, but I know all the odds and ends will be in one place. I also have a folder on. My computer for online donation and payment receipts, as well as a spreadsheet for donations.

    The rest of my office is a wreck, buy this system actually works and is easy.

  11. posted by Susannah on

    Taking it one step further: not just a single “tax-prep” folder. As part of filing each year’s taxes, I generate several lists of documents. There’s a list for each category of stuff mentioned by those two commenters, as well as some others specific to my household & businesses. I prep for the next year by printing out those lists. Each of those lists gets its own fresh new folder in my file cabinet, with the list clipped to the folder. As documents go into the folder, I check off the list.

  12. Profile photo of

    posted by Laetitia in Australia on

    Australia’s tax year is 1 July to 30 June and our date for getting returns in is 31 October (although this past year they were giving automatic extensions until 6 November). I like our tax year dates as it spreads the headache load away from Christmas and Easter.

    For personal tax returns we have to keep our supporting documents for 5 years. I use document wallets on a rotating system. I write on them when they have to be kept until at which time they go back in the cycle for the following year’s receipts.

    I get the impression that our tax system is simpler with regard to deductions and rebates but this would depend on the person and their finances. Mine is fairly simple so everything gets tucked into my folder as soon as I receive it. However I do put like with like within the folder e.g. income documents together, donation receipts together, work-related deductions together…you get the idea, to make it easier when I get my group certificate (how much I’ve been paid and what tax deductions have already been paid) from my employer.

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