By Wise Bread
Tax season officially runs from January 1 through April 15. But calendar deadlines are deceptive. Face it: Tax preparation is a 12-month activity requiring discipline, organization and data, according to accountants and professional organizers.
Fortunately, it’s never too late or too early to set up a system for tracking tax records, receipts and other paper work. Here are five tips for organizing your taxes.
1. Mental exercise:
Tax preparation begins with mental preparation. “The first place to organize is our minds,” said Rivka Gerecht Caroline, a professional organizer with So Be Organized. Make a tax date by marking your calendar with specific times for starting the process. Build momentum by establishing a schedule for organizing records.
If you feel overwhelmed, break the process down into small steps, said Standolyn Robertson, past president of the National Association of Professional Organizers and owner of Things In Place. And remember to book time for a mental vacation, with reserved space for a hobby, sports event or a spa date as a reward for completing the process. This tax incentive will help you override procrastination, Caroline said.
2. Set up a system:
Tax records can be collected in a variety of files, ranging from a shoe box to one of several electronic filing systems, Robertson said. Whether you select low-tech or high-tech tax preparation tools, it’s important to maintain a system for storing receipts and other paperwork.
“At the first of every year, set up a large envelope or folder titled with the ‘current year’ and start accumulating tax-related income and expense information during the year as you go along,” said Carol Sokolow, a certified public accountant based in Miami. Key documents include receipts and credit card slips for business expenses, major purchases, charitable donations and other notable transactions.
“Then at tax time throw all year-end statements in the same envelope or folder. You will be ready to prepare the return or meet with your tax preparer. Organizing will not be such a daunting task at tax time,” Sokolow said.
3. Do your homework:
Get the most out of tax consultation sessions by doing your own grunt work. “You should use your accountant to prepare your taxes, not organize your paper work,” Robertson said. To make the process painless, she recommends sorting through receipts and other paper work while watching television or listening to music.
4. Review the past:
Use past tax returns as guides for the current tax season. “Last year’s taxes can be a checklist of what to look for this year,” Robertson said. If you hire a tax professional or a bookkeeper, request a checklist or a packet of tax preparation tips. There are also several places online where you can download tax preparation checklists.
5. Check your credit score.
Prepare for a tax refund or a tax bill by requesting a copy of your credit report. A review of your credit history will help you set priorities for paying down debt and improving your credit score, said John Branham, a spokesman for TransUnion Interactive, a credit report service.
“Understanding their credit situation now can help consumers create a plan to best use their refund or prepare to pay their tax bill,” Branham said.
Sharon Harvey-Rosenberg is a member of Wise Bread’s top personal finance blog network. She is the author of "Frugal Duchess: How to Live Well and Save Money” and a contributing author to ”10,001 Ways to Live Large on a Small Budget.”
If the thought of doing taxes makes you break into a cold sweat, you're probably like many of us; fearful of making a mistake and having the IRS show up at your door. Tax forms can be complicated, but don't let the complexity scare you away from tax credits that are legally yours to claim. Tax deductions and credits aren't just for big companies and finance-savvy folks. Look over the list below; you might be surprised how many tax breaks -- in the form of both credits and deductions -- can be applied to your tax return.
1. Charitable Donations
Most cash donations made to charity in the tax year can be claimed as an itemized deduction on your tax return, but many folks don't realize that non-cash contributions can be claimed as well. If you've donated to a charity or non-profit organization using your credit card, you can claim that donation. If you've donated material goods or services, be sure that you have a receipt from the charity stating the value of the goods or services you donated. You can claim that value as a charitable deduction.
2. Child Care Credit
If you pay for child care regularly while you are at work, you may be eligible for a tax credit. The amount of care covered can be up to $6,000 for the care of two or more children, according to Kevin McCormally, the Editorial Director of Kiplinger.com. Be sure to keep clear records; paying your child care provider in cash while keeping no traceable record of the payment will make it extremely difficult to claim the amount on your tax return.
3. Home Energy Efficiency Improvements
If you have to make any home improvements, go with the energy efficient options. Consumers can claim 30% of the cost, up to $1,500, of energy efficient home improvement items, such as "energy-efficient windows, insulation, doors, roofs, and heating and cooling equipment in existing homes," according to the Department of Energy. So replace those doors and windows by the end of the year and get a break on your taxes.
4. Residential Renewable Energy Tax Credits
Another "green" tax break is for renewable energy additions made to your home. The Department of Energy includes "solar energy systems (including solar water heating and solar electric systems), small wind systems, geothermal heat pumps, and residential fuel cell and microturbine systems". Home owners can get a tax credit of up to 30% of the cost of these improvements. When you consider how much money this type of renewable energy will save you in lower electric bills over the years and combine that with the 30% tax credit, greening your home begins to look like a pretty smart move.
5. Relocating for Work
Whether you're moving for your very first job, for a new job or for relocation with your current employer, you can recover some of your relocation expenses. You have to validate your move by passing a couple of "tests". The first test involves the distance. The distance from your new work location to your former home has to be at least 50 miles longer than your previous commute. The second test is just a way of proving that you actually moved for the job; you have to be employed for at least 39 weeks out of the 12 months immediately following your move, in the vicinity of your new job. You don't have to actually be employed with the same company, just in the same general area.
The Bottom Line
Tax credits and deductions are for everybody. Simply donating, working and improving your home can add up to significant savings on your taxes, so start getting out those receipts and adding up the numbers. Document what you claim on the deductions and ask your tax professional if you have any questions about what you can claim. Then go for it; you might be getting a much bigger refund than you thought.