Category Archives: Financial Doing

Prepare For Your Tax Return: A Tax Document System

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Tax time doesn’t have to be drudgery.  With a very simple system you can have the information that you need gathered together in one spot to make the process much easier this year and going forward.

The key is to have one year-round dedicated spot for incoming tax information and receipts.  Yes, that’s right, I said year-round.  I know that this is January and you are starting to get the annual onslaught of W-9s, 1099s, mortgage interest information, and other tax documents, and it is very important to establish one spot to collect all the those documents that come in.  That will be very helpful.   But that part of the tax return really isn’t the challenge is it?  It is tracking down the deduction information and the receipts that go with it.  If you are anything like me, you have a lot of donation receipts, I am soft hearted and I usually say yes at the grocery checkout lane when they ask me for a donation.  And I want to take all those little donations off of my taxes, I might be soft hearted, but I’m not soft headed!

If you don’t have a system, start with something simple like this:

1) Create your dedicated spot.  It can be a drawer, a decorative box, an accordion file, or a special section of your file cabinet.  You could even do this electronically by scanning and creating folders.  Just find a system that works for you.

2) Create one file for all the tax documents that come in between January 1st and March 15th, this is a temporary holding spot for those documents like W-9s and 1099s.

3) Create a file for each type of deduction which results in many receipts or statements for you, then one “catchall” file for deductions that do not have many reciepts.  For example, you might have a file for Healthcare, a file for Childcare, and a file for Donations, because there are many receipts for each of those.  But then in your “catchall” file you might put any receipts/statements for deductible expenses such as investment related expenses, tax preparation fees, unreimbursed business expenses, etc.

4) Create files for your bank statements, investment account statements, credit card statements, you can then refer back to these for deductible expenses at tax time.  These files can be with your tax documents or with your other household files; as long as you can easily get your hands on them at tax time.

Having a system like this has another benefit as well.  Do you have a Flexible Spending Account (FSA) or Health Spending Account (HSA) available to you at work?  Keeping a separate file of your healthcare expenses and throwing every single healthcare receipt into it throughout the year will let you know exactly how much you spend on healthcare in a year.  Having that information will allow you to maximize
the tax savings you have available to you through the Flexible Spending Account benefit through your employer.  The same goes for childcare expenses.

Having a system like this will allow you to keep more of your money in your pocket and out of Uncle Sam’s.

It can be very tempting to file your taxes on February 1st, keep in mind the types of investments that you own, because some investments can have K-1s or amended 1099s that come as late as mid-March.

It’s on your To-Do.  Let’s get it To-Done!

Just getting started?  Create your dedicated spot and set your files up. Put it in an easy to see and use spot so that tax time is easier this year and future years.

Ready to take it to the next level?  Make tax time even easier by making notes to yourself.  If you are paper based, throughout the year notate taxable events on receipts and statements.  Know that you charged a charitable donation to your credit card?  Jot a note and throw it into the donations folder so you know to look for it next year.  If you are software based, software such as Quicken and mint.com allow you to note transactions as tax related.

It’s on your To-Do. Let’s get it To-Done!

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Financial “To-Do” items

Often times, when I call someone they say to me “It’s funny that you called, because I have been meaning to call you” or “You are on my To-Do list”.  I have heard these types of comments for many years.  I have a theory about this.  My theory is that just about everyone has important financial To-Do items sitting on their To-Do list.

Generally, the items at the very top of a To-Do list are items that are urgent, like fixing a leaking roof; or they have a looming deadline, like buying a birthday gift.  Whereas, the financial To-Dos, such as “what should I do about college planning?”, have a tendency to rest near the top because they are important but, just can’t quite seem to get all the way to the top of the list because their deadline isn’t just around the corner.   Usually something has to happen to nudge that To-Do higher on the list, hopefully it isn’t the fact that college suddenly has a looming deadline.

The definition of “To-Done”

When it is time for you to go to the dentist, you put that on your To-Do list.  Once you have seen the dentist, you check it off – To-Done!  Does that mean that you never go see the dentist again?  Of course not.   When it is time for you to set your next appointment, you will put it on the To-Do list again.  The same holds true for financial planning – it isn’t a one and done type of thing.  While there are a few financial To-Do items that you do once and forget it, most financial topics need to be reviewed on a periodic basis.  For example, portfolios need to be rebalanced, employee benefits have annual enrollment periods, taxes are filed once a year, etc.

There are a variety of reasons people don’t tackle their financial To-Dos.  Many people lack either the time, confidence, or desire to handle their finances, for those people, professional advisors are a good solution.  And for others, who want to tackle some of this on their own, I hope to provide some simple To-Dos within some of my blog posts because I find it very encouraging as a financial advisor when I find consumers who have an interest in financial planning.  I hope that these posts are of help to consumers that are looking for assistance from an advisor as well as consumers that are looking to manage their own financial affairs.