You are probably in one of three places regarding your taxes:
1) You have a system set up that you use and that works for you. Great! Keep reading and see if there are any tips that you can use to tweak your system and make it even more efficient and easy.
2) You have a “sort-of” system that still engenders a level of panic as tax day draws near. Stay calm, help is at hand.
3) You have the “ostrich head in the sand” approach and haven’t filed taxes for a number of years, or are consistently filing extensions, franticly searching for receipts, and always missing deductions. It could take some time to organize your records, but once you have a system set up, it will be easy to sort your records and make tax time a breeze next year.
Preparing for your taxes is a large job. And the best approach with large jobs is to break them down into manageable components and work steadily on them. Fortunately, with taxes, that’s easy to do.
There are three basic steps to organizing your taxes:
The first step is to decide which categories you need to track. This will depend on your situation and an accountant is the best person to advise you on your exact categories. Having said that, for individual taxes, it is usually not very complicated. Have a place for your income related tax information – W2’s and so on. If you only have a single stream on income and you claim the standard deduction at the end of the year, that’s all you need. If your income has multiple streams, create different categories for income, e.g. W2’s, rental income, dividends, etc. If you claim an itemized deduction, you may want to separate the deductions into different categories, e.g. charitable donations, home mortgage interest, medical, etc. Check IRS for categories that are likely to apply to you. The IRS has all of its forms and publications online so a little research yourself can produce the likely categories for you. Click for instructions for Schedule A on your 1040.