How To Organize Yourself For Tax Preparation

by KNS Financial on February 14, 2011

Ever since I became a tax preparer, I’ve noticed how little people actually pay attention to their finances…especially their taxes!

Most people simply throw their receipts into a shoebox, grab a bunch of unopened envelopes (which they believe contains their various tax documents) from employers, banks, and mortgage companies, and dump all of this paperwork on their preparer’s desk when it comes time for tax preparation!

Being this unorganized with your financial data can only lead to trouble. At the very least, it can cause you to miss out on tax credits and deductions to which you are entitled. However, this can also cause you to overlook payments that are due, or to fail to realize that certain paperwork is missing.

Here are four tips that can help make filing your taxes a much easier process:


File And Organize All Of Your Tax Documents

You should have already received all of your tax documents. This includes a W-2 from your employers, 1099-MISC from any company (except for your employers) that paid you more than $600 (maybe for consulting or contractor work), 1099-DIV if you earned interest, etc.

Also, keep in mind any expenses that you may have that should be included on your tax return. You should receive documentation for your mortgage interest and property taxes (1098), student loan interest (1098), and tuition payments (1098).

Once you receive these documents in the mail – or hopefully online (this is 2011!) – put them away in a file marked “2010 Tax Return”. Actually, I recommend scanning each of these documents into PDFs, and storing them on your computer. Separate your income and expense documents to make things easier when you go to file.

If you are missing any of these documents, then call whatever company owes them to you and request them – be sure to double check the address they have on file for you.

Collect And Organize Your Receipts

The same principle that we discussed above regarding your tax documents applies here as well. Go get your shoebox (or plastic bag) full of receipts and separate them.

If you own a small business, then be sure to keep those receipts separate from your personal expenses. Any receipts that you have for day care expenses, charitable donations, medical expenses (including copays), and property taxes – if you pay them directly – should be separated by those categories.

At this point, don’t forget to calculate all of your eligible miles driven using the standard mileage rates. If you have used your car for business or medical purposes (even something as small as picking up a prescription), or in service of a charitable organization, then you are eligible to claim those miles on your tax return.

The key here is to have everything organized by type of expense in order to make your tax preparation that much smoother!

Know Your Filing Options

There are a few different ways that you can prepare and file your tax return. First you must decide if you are going to prepare your own taxes, or if you are going to hire a professional. If you decide to file your own return, then you still have a few options to consider.

If your AGI is less than $58,000, you can go through the IRS’ free file option. You just have to answer a few questions and they can pair you together with a service that will file your federal tax return for free. Keep in mind that there is usually a charge for filing your state return with this option (actually that charge is usually higher than if you pay for the service as a bundle).

You also have a number of low-cost options online (such as Tax Slayer and Tax Act). Also, you still have the option of downloading software to your desktop and preparing your return offline.

This leads us to our next tip…

Find A Reliable Preparer

With the level of complexity involved in preparing a tax return growing each year, it is becoming much more difficult for an individual to prepare their own return. Rather than let your pride or miserly ways cause you trouble, it would be better to pay for professional tax preparation, then to risk making a huge mistake on your tax return!

I’ve actually had conversations with friends and family members who file their own taxes because it seems so easy to do with the latest software. What I find over and over again is that they have missed serious deductions and credits because they don’t understand tax basics.

Tax software is getting better at including questions that will prompt you to remember certain deductions; however, they still function on the information that you enter in…no matter how flawed or incomplete.

photo by Arvind Balaraman

Reader Questions:

  1. What do you do to ensure that you are organized for tax preparation?
  2. Do you hire a tax preparer? If so, how do you make your choice?

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