It is late March (or even early April for some…) and you are frantically trying to gather your tax documents for your accountant but you can’t find anything… Does this sound familiar? We have all been there at some point, even I, a tax professional. It is important to build an organized system that works for you. Organization is key in all aspects of life. For me, organization creates clarity and eliminates stress.
Simply start with a tax folder… Having designated tax folders—these can be with hard copies or cloud-based–is a solid starting point as you gather and receive your documents. You should receive W-2’s, 1099’s and other tax documents in early February. Try to file these items right away so you are not in a last minute crunch and looking through a pile of bills to find them. There are also times when my husband will receive a tax document and is unsure what is relates to and what he needs to do with it… When in doubt, put it in the “file” for your accountant to review.
Sophisticated software tools can help you get financially organized. Excel, Quicken, and QuickBooks can be beneficial tools to track your financial records. This can be very important for medical expenses, contributions, unreimbursed business expenses, deductible legal fees, and other deductions.. Excel is a basic tool to keep a running total of such deductions. A step up from that would be Quicken, which is useful for tracking your personal finances and personal rental properties. I highly recommend QuickBooks for business owners, since things can become overwhelming very quickly if you don’t have a good tool to track your financials. The software is user friendly and you will be at ease knowing all transactions are reconciled and accurately categorized. To have accurate records is crucial, especially if you are selected to be audited by the IRS. If you find it to be overwhelming to record your business activity, that is something you can outsource to our firm.. We even do this for some high net wealth individual clients. It is a lot more efficient to update a spreadsheet or QuickBooks throughout the year when you know what each receipt is for, versus trying to frantically put all of your activity in last minute the following year.
Keep your receipts! For all of these medical expenses, contributions you make throughout the year, unreimbursed business expenses, and so forth, it is crucial to have the support. Having an organized filing system for such receipts is one less thing you need to worry about. If you were to get audited by the IRS, you would be required to provide support for your return.
In the end, with an organized system in place, you will avoid that stress at the start of the New Year. You will have all your tax documents in order and can give them to your tax professional in a timely manner. In return (if you have supplied everything you needed to) you will have your tax return completed earlier and avoid any penalties for missing the tax deadline.