Prepare for Tax Season Now
While Tax Day is three months away, donâ€™t wait until the last minute to pull together your tax information. As you use the New Year to get organized and celebrate â€śClean Off your Desk Dayâ€ť on January 12, use this time to reduce financial paper clutter and get your information in order now.
Did you know that that the average worker spends 150 hours per year looking for misplaced information and that an average of $250 is spent in recreating a lost document? Poor bookkeeping habits combined with disorganized receipts and other financial paperwork can spell disaster for any individual or business not to mention the impact on productivity. These events can be stressful enough, so why make it harder on yourself?
We continue to be deluged with paper that comes into our home and businesses in the form of newspapers, magazines, flyers, schoolwork, correspondence, bills, and other documents. While some items are easy to toss, when it comes to financial and tax-related documents, it can be much more challenging to determine what you need to keep, and what you can discard. Here are a few simple guidelines to get you ready for tax season:
- Discard What You Do Not Need: Toss credit card receipts and bank slips once the item clears your account, except in the following circumstances:
- If you will claim the purchases on your tax return, then all supporting documentation should be kept for seven years in case of an audit.
- If the item is under warranty. You may want to keep the receipt with its manual.
- If the item is expensive and unique and you want to have proof of purchase for insurance purposes.
Unless you are claiming the expense on your income tax, utility and similar bills, bill statements can be discarded after the current year as can credit card statements.Â Most companies will not make adjustments if an error is not reported within that time. Be sure to shred documents you are throwing out to help prevent identity theft.
- Find the Items You Need to Keep: It is important that the receipts be filed under the appropriate heading â€“ Tax, Warranties/Manuals, Healthcare, and Insurance â€“ so you can find what you need when it is time to make a claim or file your taxes.
- Get Automated: If you keep receipts and financial documentation as a reference of your expenses, consider entering the information a software program such as QuickBooks or Quicken.Â This will reduce a large volume of paper clutter and also create aÂ convenient way to track income and expenses.
By following these simple guidelines, you will reduce your paper clutter and the stress and frustration of wasting time searching for the documents you need when you prepare your tax returns. The ultimate goal is to create and maintain an organized system to save time, avoid penalties and paying Uncle Sam too much. So, get a head start now because April15 will be here before we know it!