Make Tax Time Less Stressful

With the winter holiday season behind us, tax season is looming on the horizon. We know it’s coming, yet every year, many of us feel overwhelmed and stressed to the point where we put off even thinking about filing until the eleventh hour.

Make this year different! While organizing and preparing may take a bit of work up front, once you have your system in place, the benefits are priceless.

For years I have maintained a shoebox-sized rattan basket for my tax information. Yep, you heard right, an ordinary rattan basket. It lives in the drawer of the TV armoire in my living room. Throughout the year whenever I get a receipt or any piece of paper that relates to my taxes, I open the drawer and toss the receipt or paper into the basket. Then, the first week of February, I dump the contents onto my dining room table, sort it into categories, add up the categories, then, make an appointment to visit my tax guy.

I understand my basket method isn’t for everyone so I’ve outlined below a simple strategy for organizing for tax time that will help you cut down the amount of time you need to spend preparing for your tax return. By organizing and preparing ahead of time, you minimize the panicked feeling you experience as you try to mentally and physically gather the financial details of the last year.

NOTE: Be sure to consult with your tax professional if you are unsure about what is deductible or taxable.

So, determine where this information should “live”, grab a handful of manila folders and a Sharpie marker, and let’s get started. If you’re a visual person you may prefer a different color folder for each category. That’s okay too.

1040 EZ Filers

If you file the 1040EZ form, you only need one folder to organize for tax time. Simply take a manila folder, label it “Taxes (year)”. That’s it! Now whenever anything arrives – like 1099 forms – place the information into your folder.

1040A Filers

1040A filers will need 2-4 manila folders. Label the first two “Taxes (year) – Income” and “Taxes (year) – Expenses”. The income folder is where you will keep payroll stubs, 1099s, annual statements from your bank, etc. The expenses folder is where you will keep receipts for donations, school/tuition expenses, loan interest statements, etc. If you have investments, create a “Taxes (year) – Investment Income” folder. If you have a small business, create a “Taxes (year) – Business Expenses” folder. 

Staple a spreadsheet or piece of paper inside of each folder. As tax documents arrive, place them into the appropriate folder. Whenever you place a document into the folder, record the transaction details, category (income or expense), and amount onto your spreadsheet. At tax time, simply add up the entries on each sheet and you’re ready to visit your tax professional or fire up your tax program on the computer.

If you prefer a bit more structure and formality to your system and don’t mind spending about $15, Smead makes a six-pocket Tax Organizer to get the job done. Simple instructions and a checklist are printed on the inside front cover. The organizer also includes printed, as well as blank labels for easy filing. The Tax Organizer features secure pockets for safe transport. Check your local office supply store for availability.

Whether you choose the manila folder route or Smead organizer route, once you establish a system and have a place to put your tax information, tax time will be so much easier and less stressful.