“Death and taxes may be inevitable, but they shouldn’t be related.”
-J.C. Watts, Jr.
Do you like to cook?
Have you ever cooked? Let’s start there.
If so, then that will be the basis for this article.
Just like following a recipe in the kitchen, this is a recipe for your financial records.
And while this year you may have more time to prepare your personal taxes—do not view the extension as an invitation to procrastinate.
In fact, consider this a friendly reminder that Tax Day will be here before you know it.
Preparing to file your taxes can be a frustrating process if you do not have a system in place. You’ll want to know where to keep every receipt, file, or bill and what to call each thing as you’re filing it.
So, the three tips in this article will help you approach your taxes as you would approach preparing a new recipe.
These tips will not only help keep your tax filing process neat, it will also speed up the entire process.
APPROACH YOUR TAXES LIKE A RECIPE
With any recipe the first step is to compile every necessary ingredient in the right quantity. In cooking, they call this preparation, mise en place—putting things in place.
The ingredients are laid out on the countertop along with utensils and measuring devices, then chopped, diced and measured so when it comes time to start cooking, all you have to do IS cook.
This way, you’re not racing to dice a tomato while sauteing the onions.
Think of preparing your taxes with the same kind of precision.
So if you itemize any expenses on a Schedule C, you aren’t still SORTING your receipts into categories when you’re also ADDING UP all that category’s expenses.
This step will help you avoid the overwhelming feeling that comes when paperwork covers every inch of your desk and you don’t know where to start.
Another great thing about working this way is that you’re not only taking care of this year’s taxes—you’re also creating a system that you can follow for every year that follows.
Tax Tools Checklist
Everything on this list is for the tax year you’re completing, typically the most recent past year.
- W-2 forms: You’ll want to have yours and your spouse’s (if you file jointly) W-2 forms.
- All other documents: From business to education receipts and invoices, there are a number of unique documents you may need to complete your taxes and maximize your tax refund. Click the link for a complete checklist from TurboTax. Tax Preparation Checklist
- Bills and Receipts: Anything else that isn’t covered in the Tax Prep Checklist above should be gathered and sorted according to category now.
- Computer: If you’re doing your taxes on your own, a computer or tablet will speed up the process and is necessary for e-filing.
- Internet Access/WiFi: You can definitely do all the math for your taxes offline, but when it comes to using web-based apps to fill out forms and file your taxes, you’re going to need a reliable Internet connection. It would definitely be a drag to get all the way to the end of the process and then have your connection time out and lose all your work.
- Notepad and pens: You’ll want to make notes and record your process so when you revisit this next year, you’ll have a record of answers to pesky questions and a breadcrumb trail to follow so you can start and finish this project quicker.
- Calculator: Either a stand-alone calculator or the app on your smartphone should be on-hand to check your math and confirm exact calculations.
Now that you’ve got all your ingredients together, make a list of all the documents you’ve assembled AND where you found them. That way, next year you’ll be able to find them much faster.
In addition, if you open any new bank or credit card accounts OR hire any new contractors, engage any new vendors, etc.—make a note of them in the moment so you don’t overlook one of them next tax season.
When that’s completed, it’s time to start assembling all these “ingredients” into the final dish, which in this case is your completed tax return.
Begin filling in all applicable fields AND totaling up expenses and income for each line item on the return.
Move slowly and deliberately and double check your math.
This will eliminate any chance of overlooking key information OR needing to backtrack or even start over.
A defined list of steps will create order and become your system for going forward.
While this amount of preparation may stretch your patience, it is necessary and important and will make the rest of the job so much easier.
To switch metaphors, when you paint a room, 3/4s of all the work is preparing the room—taping off windows, doors, floors, etc. so that when you actually start to paint, all you have to do is roll it on. It’s the same thing with taxes.
Filling out the form may be the most important part of the task since that’s what you will file, but all of the prep work leading up to ensures that the information you enter is accurate and complete.
Using clean utensils and avoiding cross-contamination is how chefs keep food preparation and cooking safe.
When starting your taxes you also want to consider precautions that will keep your information safe.
The IRS has reported a “steep upswing” in taxpayer data theft.
So keep your data safe by being smart and aware of any links you click on or open.
Don’t open unknown or suspicious emails especially if your personal information is saved on your computer and/or opened on your computer.
Opening phishing emails and or clicking unfamiliar links are two ways that theft typically occurs.
Remember that the IRS will never call you and ask for your social security number. NEVER.
Neither will any state tax authority.
Also, do not unsubscribe from suspicious emails. That is one way that they verify your email address and identity.
Any email from someone you do not know that says, just reply STOP or unsubscribe and we’ll remove you from our mailing list is likely phishing.
Any legitimate email service will include an unsubscribe link in the bottom of their email. That is typically safe to use.
Delete and/or send unknown emails to your spam folder when they appear. Flag and report then as such with your email provider.
Another safety tip is to use a secure web browser for improved safety. Don’t use tax time as a time to experiment with new browsers or extensions.
RECEIPTS ARE THEIR OWN ANIMAL
Here’s what I do with receipts—I log them all into money management software, e.g. Quicken/Quickbooks, etc. on a weekly basis—if you do something similar, once they are entered they can be deposited into an envelope labeled:
MONTH, YEAR RECEIPTS
I don’t sort them any more than that—since all the detail has already been logged into the computer.
At the end of the year, I have 12 envelopes that get deposited into a box labeled with the YEAR—along with all the corresponding files from that year that support my tax filings.
All the paper from that year will now live together in that box. They’ll remain there, barring an audit, for seven years and then be destroyed.
If you don’t record everything throughout the year, I’m suggesting that you begin doing that with this year. You will save yourself a bunch of time since it will be much easier to identify your expenses now while they’re fresh in your mind, rather than in 10-12 months when they are dull and stale.
If you don’t record throughout the year, I suggest you create an envelope for each of your categories or accounts that you book business expenses to, e.g.
MEALS + ENTERTAINMENT
EDUCATION + PROFESSIONAL DEVELOPMENT
You’ll label these envelopes prominently:
Get yourself a bin or basket which will become the home for these envelopes. You’ll want them out and accessible to encourage their frequent use.
Every day or several times a week, as you empty pockets and gather up receipts, you’ll review them long enough to drop them in their corresponding envelope.
At the end of the year, you’ll have the first part of your work finished, since every receipt will at least be properly categorized.
At that time, the first step in sorting will be to isolate all CHARGED receipts as those won’t be necessary IF you’re using your monthly charge account statements as the source for all charged expenses.
When it comes time to enter receipts, all you’ll be seeking to record will be CASH receipts, since the cash receipt is the ONLY record of cash spent.
As you enter each receipt into a spreadsheet or money management software, I suggest you mark each receipt in some way, either with a check mark or a dot to indicate it has now been recorded. Should they ever get displaced or jumbled, this mark will distinguish previously recorded receipts from their yet-to-be entered siblings.
When each category’s entries have been completed, you have two choices:
1) Return all entered and categorized receipts back to their labeled envelope and file them in the YEAR box as described above;
2) Staple the entered and categorized receipts to a blank sheet of paper, labeled with the category’s name. For each category you’ll have two sheets of paper: one labeled CATEGORY/CHARGED and one labeled CATEGORY/CASH. You’ll secure these pages into a classification folder labeled:
BIZ EXPENSES, YEAR
with each CATEGORY labeled on each tab. Then this folder would be deposited into the YEAR box.
The first example given (entering throughout the year) is my preferred choice.
It keeps things current and leads to little backlog, and avoids a year-end scramble to compress 12 months of activity into a few weeks of intensive and not-so-pleasant work.
There’s less possibility of error, less possibility of missing statements and takes a tremendous amount of pressure off of you. Less mess = less stress!
THE BOTTOM LINE
Create Order For Tax Time
When life gets busy it also gets messy. Tax time is one of the busiest times of the year and the time-wasting caused by a lack of any system can result in unnecessary mistakes.
With multiple moving parts and various individuals involved, tax time can also be overwhelming for even the most prepared.
Tackling your taxes by making all necessary ingredients easily accessible, creating a step-by-step list, and by prioritizing safety, will make the process less agonizing and get your taxes accurately completed.Maintain a sense of order and mark your calendars for Tax Day each year. Click To Tweet
Subscribe to a list of important dates and it will auto-repeat every year without you doing anything else.
And remember, it’s just simple math and a stack of paper— with a proper system in place, it can’t cost you more than a few hours of your time or hurt you more than a paper cut.
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