Tuesday, June 17, 2014

Organizing Tax Documents

Whether you are scrambling to get your documents together for last year's taxes or just planning to do things better for this year, the key to a less stressful tax return is organization. Being organized doesn't have to mean complicated filing systems but it does mean you have to give up the "file pile" mentality. There are some simple steps you can take to simply the tax preparation process while keeping your sanity.
Most people can use a 3-folder system. Income, deductions and investments are the three major categories you will need. This is a great way to stay organized so that you can always find what you need when you need it. If you have others, make folders for them as you deem appropriate. Let's look at what goes into each folder.
Create one file for all sources of income. This file should hold pay stubs, tips, dividends, distributions, rental income. If you have numerous sources, you may want to have several folders and group them logically. Each folder should have a tally sheet where you record each item as you file it. It makes it easier to total everything at year's end then to wade through the stacks of paper. If you've been diligent, all the documents are in one place for reference and the details are entered on the tally sheet for easy processing.
Store anything that can be deducted such as mortgage interest, child care expenses, medical expenses, non-refundable work-related expenses. As with income, it may be easier to manage with multiple folders. Tally sheets for each category of expense can reduce compilation time come April. While you may not feel like taking the time, it will pay off once you see how much time you save later.
IRAs, Roth contribution records and distribution records if you've started collecting from various plans are all important documents. Grouping them by how they are taxed: tax-deferred, non-taxable and taxable invests, can simplify the process.
When it is time to do the prep work, review each folder, total the numbers for each category and fill in the blanks on your itemized return. Match W2s and 1099s with your records, checking for any discrepancies. A little preparation all year long can save headaches at filing time.
Taxes do not have to bring you stress and worry. When you take some time throughout the year to prepare, it makes it all easier when tax time comes around.

Article Source: http://EzineArticles.com/5817243

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