How do I avoid the annual fire drill in late March?
If you what to prevent the stress of tax season, the key is organization.
So how do I stay organized?
There are a few ways you can do it. First are you a virtual or paper based person? Either way, you need folders in a file cabinet or on your hard drive.
Create a system.
By the Month
The by the month system is relatively straightforward but will still require some work. Collect all your expense receipts in a folder by month. You will still need to sort those at year-end, but at least you won’t be searching for them. Sorting by month is good for employees. W-2 employees do not tend to have lots of expenses. They have mortgage interest, medical, and property taxes.
If you are a business owner, you will still have a lot of work to do at year-end. If you own a business and do regular bookkeeping, by month will work.
By Expense Type
The by expense type system is also relatively straightforward. In this system, you create categories like medical, mortgage, and property taxes, if you are a W-2 employee. You can see all the categories for deductions on a Schedule A here.
If you are a business owner, you’ll want to create categories. There is a bigger list of categories like Advertising, Legal Services, Office expense, Meal & Entertainment. You can see all the expense categories on a Schedule C here.
Both
If you stay on top of things and do it virtually, both is easy. Scan or download your receipt. Save in in a folder with the date and what it is.
Example: Year-Month-Day Property taxes (2015-03-26 County Assessor's Office)
That way you will have a list of expenses by date, kept in folders by month. You can easily copy and paste in another folder that is sorted by expense type. When it come, time to do you takes you can total receipts in a folder. Let’s say medical; you will have them all in one place.
It is a little redundant, but you’ll be able to find your expenses by month or type. Using the system that does both is good for a business owner.
In the end, doing your taxes is not difficult, it is preparing to do your taxes that is the hard part.