Recently my wife and I purchased our first house. It is a nice house in a quiet neighborhood, but it is somewhat of a fixer upper. We are making many updates to the house including installing new flooring, painting the entire interior of the house, and remodeling the bathroom. I wanted to test out my handiness, so we are completing most of the projects ourselves except for some of the larger items, which are clearly beyond my skill level. While I am definitely enjoying the challenge, it’s taking a long time to complete, and some days it feels like I didn’t even make any progress.
Where we are currently living the lease is almost up, so we need to move into our new house very soon. That means it is crunch time and I have been putting some very long hours into the house to ensure its in a livable condition. Working those long hours in the evenings and on weekends is getting exhausting, and is making it so the projects I’m working on are not quite as enjoyable. If I had more time to complete the projects at my own pace and spread out the work it would be much easier on me.
I think the same can be said for keeping up with your tax records throughout the year. When last year’s tax return is still in your rear view mirror and next year’s tax return has not even shown up on your horizon, it’s easy to just stash tax items away in a drawer, pile of papers in the corner, or any other location you have where you won’t have to see them until “tax time.” Unfortunately, with this strategy you may wake up one morning and realize your taxes are almost due. Then you will be in the same situation I am in with my house, in crunch time. You will then have to spend long hours sorting through various drawers and piles of papers to hope that you find all the information you need. However, staying on top of your tax records and taking advantage of the time you have throughout the year can make next year’s tax filing much smoother.
Some of you may have a system down and take care of your tax information as soon as you receive it, but if not here are some tips to help…
- Open all tax documents as you receive them. Read through the document and make sure you understand it. If it is confusing and takes a while to understand, write a summary explaining your understanding so that you don’t have to figure it out again later.
- If you do not understand something, contact your CPA immediately rather than putting it off. This way you can process the information and keep your records up to date.
- Put all your documents in a filing cabinet or file box organized by the type of information (W-2, 1099-INT, 1099-DIV, etc…).
- Put a summary sheet at the front of your current year’s tax information file listing all the information you have received so far for easy reference.
- Keep prior years returns and documents in the same location as your current years so that you can easily reference back if you have a question. Be sure to keep all the years separate and clearly marked.
- If you use accounting software such as Quickens, QuickBooks or Peachtree keep your accounting records up to date rather than trying to record everything at one time.
The key to keeping up with your taxes throughout the year is starting a process that works for you. Once you establish that process it will benefit you year after year since many times your tax information will be very similar from one year to another. So use the tips provided or come up with some of your own to start a process to keep your tax records current throughout the year and you won’t end up like I am with my house, in crunch time at the deadline.
By: Mark Sawyer, CPA
