Would you like to reduce some of the stress that comes with filing income taxes?
Every year, I prepare my mother-in-law’s taxes. Her taxes are relatively simple and easy to file online.
However, every year, without fail, I am fumbling around trying to find/remember all the pertinent information that is necessary to file her taxes.
Last year, at the very last minute, as I was finishing up, I realized that one crucial document, the main 1099-R (retirement earnings) was missing.
Filing her taxes was abruptly aborted and instead I rushed to get an extension filed before the deadline.
A little bit of advance preparation could have avoided a delayed refund.
Although some would call it a sickness, I love coming up with processes that make large projects easier to manage.
It occurred to me that I needed to have a process in place before it was actually time to file income taxes.
Steps to take before it’s time to file income taxes.
Secure all tax related documents as they arrive, whether by mail or electronic means.
Documents will begin arriving in early January.
By law, tax documents are due in the mail by January 31st.
Have a plan of where the documents will be kept until they are needed.
The tool of choice for me is the ever-faithful manila file folder.
Label the folder simply, taxes, and add the year.
Immediately, as tax documents begin arriving or are downloaded, put them in the file folder.
Resist the impulse to keep tax documents with your other mail. They can and will get lost and overlooked when you begin to prepare your taxes.
Create a cheat sheet of all personal information necessary to file taxes.
Your cheat sheet should contain the full names, social security numbers and birthdates of all filers and dependents.
If you typically get a refund, and it is direct deposited, include a record of your bank routing and account numbers.
Take a quick minute to ensure your banking information is correct.
Life situations change and with them, banking information.
Divorce happens and the last thing you want is for your refund to land in the account of your ex-spouse. Because good luck in getting it back.
Just in case you think that can’t happen, one year I prepared both my mom’s and nephews’ taxes. I put my mom’s account information on his return by mistake.
My nephew’s refund was deposited to my mom’s account. Luckily for us, it was an easy fix with the writing of a check. But oh my goodness, it could have been a nightmare!
Keeping a cheat sheet with all personal information is a time saver and it is actually amazing how many times, in addition to tax time, you will need this information.
Include a copy of last year’s tax return in your file folder.
You may or may not need a copy of last year’s tax return.
Having it on hand in case you do eliminates a last-minute scavenger hunt.
Keep an ongoing list of documents that you think you should be receiving and check them off as the documents arrive.
The documents that you receive from year to year will change with your circumstances.
Maintaining a comprehensive, updated list ensures that nothing is missed when you file your taxes. (You know, like the main tax document 🤦♀️)
You may think that your situation is simple and the only thing you need to be concerned about receiving is your W-2.
This may or may not be true. I am amazed at how many tax documents can be delivered to the most very simple tax filer.
Did you receive unemployment for any part of the year? You will get a form for that.
Did you attend college? Again, there’s a form for that.
Did you do some work on the side? Guess what, there’s probably a form for that.
Get the picture? You may have more forms coming than you think.
Do yourself a favor. Keep a list.
The last thing with which you want to deal is filing an amended tax return because documents arrived after you filed your taxes.
Do you itemize?
If you itemize your deductions, gather all supporting documentation and put it in your file folder.
Do you have a small business?
Creating a tax filing process for those who run a small business is going to be much more in depth than the scope of this post.
However, the concept is the same.
Gather all supporting documentation that will be necessary to claim your deductions and have it available in your file folder.
My suggestion would be to have a separate file folder/folders for your small business.
One word of caution when filing your taxes
Don’t file too early. Everyone wants to get a jump on their anticipated refund. However, if you file too early and documents arrive late, you will end up losing time because your taxes will need to be amended.
(mid February is probably the earliest I would ever file.)
Tax filing is probably not ever going to be considered one of those fun annual activities.
However, investing just a small amount of time before you prepare your taxes can certainly make the process go a whole lot smoother.
updated 01/19/2024
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Love the wrapping paper hack!
Thanks! (Lynn is referring to the hack which was included in the newsletter that goes out to subscribers 😊)