I decided to put together a list of tax planning strategies we can all embark on throughout the year in order to reduce or avoid that mad scramble in March. This is a great follow up to my other suggestions regarding setting up a personal financial calendar to enable us to manage our affairs better.
7 Simple Tax Organization Tips To Use All Year Round
Here then are some tips on making sure you can get into a year long habit right now.
1. Break down a big job into manageable pieces. If you get antsy about doing your regular little chores so that you don’t have a last minute panic at tax time, then remind yourself that small bite sized jobs take minutes to do. Tax time all in one hit can take days. Ask yourself if you’d prefer to spend fifteen minutes doing some filing now or fifteen days sorting the whole lot out next tax time? Getting into the habit of doing things this way may take some time to develop, but it should be worth it in the end.
2. Know what information you need. Your information could be any number of things –- pay slips, receipts, previous tax advice or information. Basically it could be anything you will need to sort your taxes out when the time comes. Unless this happens to be the very first year that you have done your taxes, you will know exactly what you need.
3. Have a monthly plan. What do you need to do each month to make sure you get the right information in the right place for when you eventually need it? Make sure you set out everything you need every month and get all that information together. Then you can forget about it and move on to the next month. For example, make it a habit to download your monthly statements from your bank accounts, or save your bank and investment statements in a filing system. Believe it or not, many people simply don’t take this step and end up misplacing their important bank notices.
4. File away and categorize. You could use a filing tray, you could use a filing cabinet or even a concertina file if you like. You’ll probably need a physical filing system as well as an electronic filing system (set up folders on your computer for this). But keep everything in its place. Have a file for receipts and another one for pay slips. Get into the habit of filing everything away as soon as you receive it. That way, you’ll know exactly where to go when the time comes.
5. Use reputable personal financial software and tools. Check out certain software and tools to see if they can help you get better organized. See our list of tax products for some helpful choices in this area.
- Get a TurboTax discount or free resources from TurboTax.
- Try Shoeboxed.com, which is a way to help you organize your receipts and paperwork.
6. Hang on to those records. Create a financial system if need be or use an existing one that works. If you have your own business and you need to keep more in depth records, make sure you’re up to date. Set aside maybe a half hour a day to organize your finances so you have all the records you need. This is the best way to do it so you don’t end up falling behind.
7. Hire an accountant or bookkeeper if necessary. If you find yourself struggling with a lot of documents and paperwork, and you’re finding it hard to keep up with things on your own, then maybe it’s time to outsource some of the work to a professional who can help you. When your finances or your business operations (if you’re an entrepreneur) are growing, that is typically a good sign, but the time may come when you’d like to have someone else to assist you so you can free yourself up to do other things. This is precisely what happened to me!
Closing Thoughts on Tax Time
So how do you plan for tax season? I’m actually guilty of doing the “deferral method”, which means procrastinate and defer tax work until the last minute. I am admittedly not as organized as I should be when it comes to money matters. I find myself pretty good with earning, making money and saving. But I am simply not so put together when it comes to managing and organizing. I’m your typical absent-minded individual with a messy desk. BUT I am working hard to make improvements. One of my biggest goals this year is to clear the desk and the cobwebs and making sure I don’t accumulate mess and clutter for too long. I already have my bookkeeper doing wonders; so this year, I’m crossing my fingers that my tax guy won’t be yelling at me as he did last year.
So back to tax time. Nobody is really fond of this time of the year and everyone seems to leave it until the last possible moment to get everything together (just like I do)! But as I’m learning now, it doesn’t have to be like that. A little at a time should be much better than having to spend ages sorting everything out in one big hit. We all get number blindness when we spend too long sorting the figures out, so imagine if we can get into a year long habit to get ahead of the times, so that perhaps we can enjoy tax time a lot more than we do at the moment.
Well okay, maybe enjoying tax time is going too far, but you can certainly eradicate the panic and worries that the season usually causes. 🙂 Naturally, the end result of these little bite sized jobs being done throughout the year is easy to see. When everyone else you know is panicking about the fact that they haven’t done anything towards getting their taxes sorted out, you can relax in the knowledge that you actually have very little work left to do. When you get to tax time, you will know that it was all worth it -– and you’ll do it all again next year, with a clearer head!
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{ 6 comments… read them below or add one }
These are good ideas. Too often, tax preparation is an arduous task! Breaking it down into smaller tasks certainly makes it easier. Originally, I used to throw it into an envelope for the end of year. Then I added a spreadsheet. With tax software, you can literally prepare your taxes within minutes after you receive your W-2.
This is my first time to read a post of yours, and I have to say it seems very poorly thought-out.
“Tips” 2, 3, 4, and 6 are virtually the same concept and are dependent on each other, and you have descriptions under the tips that are repeated and cross-over into the other tips. In tip 3 you suggest that people should download monthly bank statements and in tip 4 go on to explain that people should organize and file things? There are too many examples to keep explaining.
I don’t see too many people reading this and thinking, “Wow, that’s a great idea. I should start doing that,” which seems like a reaction one would be going for when sharing “tips.”
@underover, are you organized? You must be. But not everyone is. So I was trying to resonate with those who weren’t (as myself). Sorry to hear you’re disappointed in this post.
There are some aspects of finance that are technical in nature, and some that are behavioral. There are a lot of basics here, I agree, but don’t underestimate the effects of pointing out the obvious.
As far as being great ideas: lots of people actually need a ton of reminders before they get to do something. A lot of this stuff, most of us already know. But it may take a personal story and somebody’s own examples to get them motivated to do it. No great ideas to you here, but it could still be helpful to others who are looking for a place to start.
I’m not very organized personally so doing my taxes last year was very stressful. This year is the first one where I’ve tried to use a filing system for taxes from month to month. It’s not as good as it could be but a manila folder called Taxes 2010 will hopefully save my bacon come April.
Comments on #4…organize your physical files and computer files the same way. Have the same folder names and same structure if you have main categories and sub categories. Also, create the files (physical and computer) even if you don’t have anything to put in them right away, this way when you do have something to put in them you already have a place to put it.
Really great tips, definitely bookmarking.