Trying to track down all of your forms by the April 15 deadline is enough to drive anyone crazy. On top of the added stress, you risk missing out on a tax deduction or tax credit because you don’t have the right documentation or because you didn’t realize what deductions were available.
If you want less stress at tax time, it makes sense to organize your taxes all year round. Once you start keeping your paperwork organized, tax time will become a breeze, and you may even wind up paying less.
Look for deductions and credits
During the year, look ahead to the possible deductions and credits you will take at tax time. For example, instead of struggling to come up with the capital to give a big charitable donation in December or to make a last-minute contribution to your HSA, divide up your obligations and pay a little each month.
This works for credits as well. Look around to find the credits for which you might qualify, and then gather the documentation you need ahead of time.
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Plan your investments
If you plan to liquidate assets, determine whether they are long-term or short-term shares. It matters because there is favorable tax treatment for gains made with long-term shares.
You can also harvest your investment losses. If you want to sell a losing asset, you can use that loss to offset the gains you receive from liquidating some of your winners. A good tax professional can help you match up your investment strategy with your tax strategy. When you plan ahead, you have a better chance to make the right choices because you won’t be rushed into something in November or December.
Keep your tax documents together
One of the easiest ways to organize your taxes throughout the year is to create a file for all of your tax-related documents. Get a folder and keep all of your receipts, forms, and other records you might need at tax time inside.
Use an accordion file to further subdivide your tax documents. One division could include your mortgage and property tax information, another could contain your charitable donation receipts, and still another could be used to keep business receipts.
If you have gone paperless, this method can still work. Create an encrypted file on your computer, and into it scan any statements or receipts. You can also use an app to help you organize your paperwork in a digital format. Then, at tax time, everything you need will be there.
If you consistently keep up with your taxes, properly filing everything once you receive it (you can do this in less than 30 seconds), all you’ll need to do is gather your paperwork up once tax time rolls around. You’ll reduce your stress level and make the time you do spend filing your taxes much more efficient.
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