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Filing my income taxes does not rate very high on the list of things I enjoy doing in my spare time. In fact, I think I would rather stick a fork in a toaster before opting to sit, chained to my desk for six hours and crunch numbers. Yet, file I must, or else face the fire and brimstone of a scowling IRS agent and subsequent audit. Still, I try to make filing as painless as possible by being prepared well in advance. For me, that requires eight steps.
Have all ID numbers in order and have a folder
I am a number memorization freak. I have all three of my daughter's, my husband's and my own social security numbers locked away in my mental crypt alongside insurance policy numbers and even my Visa number, expiration date and security code. However, before I took the time to memorize all of these digits, I made sure to gather all social security cards and had them ready in advance for tax time.
I divide all of my financial information up into different (pre-labeled) folders. The social security cards would go in a folder labeled "Family documents." I would have several other folders alongside it, for employment documents, account statements, investments and bills.
Have all employment data ready
For my spouse, taxes are simple. I wait for his W-2 and plug in his information. For me, it is a tad more difficult. As an independent contractor, my employment data is more complex than a simple W-2 primarily because I receive more than one statement at year's end and have to sift through numerous employment forms and tax paperwork. I make sure that I receive 1099s from each company I did work for during that year, and double check that by keeping a spreadsheet of my invoices, clients and projects. I never file until I have all documentation in hand.
Keep running totals throughout the year
I keep running totals of the things I know I can deduct. For instance, client lunches, dues and organization fees or memberships, gas, car maintenance and home office expenses are things I tally up when I reconcile my bank statement at the end of each month. I enter the totals on a spreadsheet using narrow categories, so I always have the most accurate information for my tax return. Keeping a running total saves me oodles of preparation time.
Interest earnings
I have several investments, thus the required IRS forms and I make for comfy bedfellows. I split my 1099-INGs and 1099-DIVs and reunite them with their individual account folders for easy access.
Mortgage information
I know that being a homeowner has some benefits come tax time. I deduct my mortgage interest and real estate taxes. My mortgage company sends me a statement of how much I paid in interest and in real estate taxes and fees each January. I check this against my monthly statements and data from the county tax assessor's office. If everything is a go, I file using the mortgage company's statement. If not, I get on the phone, pinpoint the issue and wait to file until I get the correct data. I never rely on the bank to get it right. I always double check the data.
Home improvements
I also know that I can claim deductions for home improvements and enjoy additional deductions for my home office and equipment. Like my other deductible expenses, I keep a running tally of these things year round and then record them in a spreadsheet for easy, instant access at tax time.
Charity and volunteer work all year long
I do most of my charitable giving in November and December of each year. This is the time of year that works best for me, and makes it easy for me to itemize the deduction; since the receipts and time spent doing good deeds are fresh in my head.
Tax credit homework
I routinely do tax credit homework. Having two kids headed off to college next fall, I am even more zealous in my studies this year. I stay up to date with the newest tax breaks and credits so that I am familiar with the qualifying guidelines before I fill out my 1040, thus shaving several hours at filing time.
These eight tax tips save me hours of work and aggravation, and they have for over five years. In fact, by compartmentalizing these items, I am less prone to error and frustration during tax season, meaning I can file early and never have to wait to appease Uncle Sam and Uncle Sam never sends anyone to visit, thanks to my meticulous nature. Everyone wins, and I have one less (very large) monkey off my back before the second week in February.
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