Preparing My Income Tax Return: How I Organize My Tax Documents

by Silicon Valley Blogger on 2009-03-0710

Here’s how I organize and prepare my taxes.

Every year, I say the same thing — I’ll get my act together and do a better job at organizing my tax documents. And every year, I fall short and end up scrambling last minute to put together everything I need in a pile that I ship out to our tax guy.

So what’s going on here? Well, I’m not exactly thrilled about working on our taxes. Although it may not be the financial task I dread the most (working on insurance claims is!), I’d consider it a close second. I suppose it’s natural that when you’re just not keen on a particular activity, you postpone it, you procrastinate, you hem and haw, make excuses and cut corners to do as little of it as you can get away with… until you absolutely have no choice but to face it head on. And I will admit, that’s me in a nutshell when it comes down to dealing with my taxes.

Preparing My Income Tax Return

I wish it could be easier, but I’m guessing that my tax situation may be relatively more complicated than most other people’s own situations. I’ll give you some idea:

  • We itemize.
  • We have savings and investment accounts which generate some activity (gnarly!).
  • We now have 2 businesses we have to account for. So handling both business income and expenses, and itemizing everything isn’t as straightforward as we used to have it as employed individuals.
  • We have a ton of medical bills (they’re a hairy mess).
income tax return, tax documents, organizationImage from BusinessWeek

I’ve decided to write this article as a way to remind myself of the things I’ve done this year to wade through our tax chaos. I hope that by this time next year, I can just refer to this post so that I don’t have to reinvent the wheel. Spending a lot of cycles on this over the last 2 days hasn’t left me too chipper. Let’s see what I’ve done:

How I Organize My Tax Documents

1. Track things down electronically.

So there are some great desktop application tools, even personal budget software to help me organize my finances better. There are also online tools like Quicken and TurboTax to make life easier, but I don’t really leverage these packages and services as much as I should. As I mentioned, I haven’t gotten around to overhauling my money management habits in a major way just yet, as I still wait for the last minute before I begin preparing our taxes.

I’m one of those “put everything in one massive shoebox” type of person. So here’s what I did for now to make do: I went back to familiar territory and worked up a series of Excel spreadsheets. I created four spreadsheets each of which represented a “tax category” that I cared about. So my 2008 spreadsheets were entitled:

  • Business Income
  • Business Expenses
  • Home Office Expenses
  • Medical Expenses

Ordinarily I would not be fussing with these categories, but our family situation has morphed from your standard dual income with W-2 wage statements to one that’s buried under 1099′s.

2. Store stuff for each tax year in one place.

Why do I end up with piles of papers in several different folders all labeled the same thing? To make things simple, I really should just get one big filing storage box, slap a tax year label on it and dump everything in there. I’m going to try that out this year.

3. Categorize tax documents.

If I have more time, I’ll do a better job categorizing and collating the stuff I have into neat hanging folders, files and what not. But they’re all going into that one storage box that will also hold anything and everything that I’ll need for the tax year.

4. Don’t throw anything.

Whether you use TurboTax or consult with a tax professional, you’ll need to keep your data organized. Because we’re taking income tax deductions, I’ll need to keep a lot of information around. That means receipts, bills, statements, paperwork, documents, and insurance materials have to be stored in one place (electronically or otherwise). Ugh. As a business owner, I need to get used to tracking this stuff better.

5. Gather and download all electronic copies of financial statements.

I retraced all my financial activities by going back to their specific sources. I downloaded all our statements from the various financial institutions we work with, and pieced together our tax picture using the following:

  • Credit Card Statements
  • Bank Statements (personal and business)
  • Online Payment Statements such as those captured by Paypal, Revolution Money Exchange, etc.
  • Investment Account Statements

Of course, you wouldn’t have to do all this if you decide to delegate this work to any one of the online personal finance tools that boast the capability of centralizing all your financial data in one place. This would be just great if you’re comfortable with sharing your data with companies like Mint or Wesabe (check out this Wesabe review here).

6. Go paperless.

I really want to go completely paperless. Maybe with less paper, I won’t be so overwhelmed, particularly during tax time. Not only will it cut down on the confetti I create with my shredder, it’ll also cut down on the time I spend using that shredder!

I’m hoping this little tax organizational system I’ve developed will make things easier going forward. So how has your tax preparation experience been this year? Hopefully not too bad!

Copyright © 2009 The Digerati Life. All Rights Reserved.

{ 10 comments… read them below or add one }

The Personal Finance Playbook March 7, 2009 at 8:08 am

I used TaxAct to prepare my taxes again this year. I am thinking of having someone prepare them for us at some point in the future. I will definitely have someone do if I end up owning my own business. It just makes sense under the division of labor – if people specialize, they can be more productive. Thanks for the good post about how to get ready to pay taxes over the course of they year, though.

the weakonomist March 7, 2009 at 12:04 pm

I use a kind of software called CPA. It’s fantastic and interactive. Feedback is immediate!

I’m planning on doing my own taxes next year though. So I look forward to seeing what people say.

Patrick March 8, 2009 at 8:29 am

I just did my taxes and I’m very unhappy with the amount of money I owe. It’s actually double what I expected, assuming I did it correctly. I have to go through it again. But your advise in this post is pretty good. Nice Blog!

shadox March 8, 2009 at 8:30 pm

Yeah, I’m the same way. I hate putting all those papers together, tracking down the cost basis for stocks (these days we only invest in indexes, but we still have a small number of left over individual stocks), and finding where we put all those other relevant documents. It’s nuts. Eventually I get around to doing it some time in the middle of March – which is what I was up to this weekend…

TaxRacal March 9, 2009 at 6:54 am

It can be pretty annoying — especially if you’re trying to file past year taxes. It’s just one of those problems that kind of compounds, at a very high interest rate: if you’re missing enough documents that you can’t file on time, it takes even more documents to get the filing done late.

Kristy @ Master Your Card March 9, 2009 at 10:40 pm

Well, my tax situation isn’t as complicated as yours, by any means. But, I do procrastinate until almost the last second and my paperwork is probably the most disorganized mess you’ll ever see. I really need to declutter and reorganize myself in a big way. Even still, my biggest problem is tossing out paperwork I need because I didn’t look too closely at it. I’ve done that a lot over the years and as such, I have no tax records from before 2006. If I’m every audited from before that time, I’m probably in a lot of trouble. Yep, definitely need to get my act together with tax stuff!

Good luck to you!

Peggy March 17, 2009 at 5:13 pm

I was an investment advisor for 25 years, prepared tax data for clients’ accountants every year but I can’t seem to find a system that works for my own taxes. Maybe it’s because I’m not getting paid to do it! After doing my taxes forever, I finally got sick of it and we hired an accountant. The only problem is that it takes an enormous amount of time- I would say 75% of total tax prep time – to gather and organize the info, even if you are partially organized. Every year I say I am going to do it better (sound familiar) and I do see some progress, but not enough. This year is the year – really.

FinancialServicesRenoNV March 28, 2009 at 3:31 pm

Greetings all members,

I would just like to say hello and let you know that I’m happy to be a member – been a lurker long enough :)

Hope to contribute some and gain some knowledge along the way….

jan March 31, 2009 at 6:45 pm

I just had my taxes done and cried hearing the outcome……owing $700. It seems I can’t get ahead. Plus I didn’t have all the paperwork, and I was embarrassed. I need to figure out how to get organized!!

Itaz December 3, 2010 at 7:48 am

The ability to go paperless in filing even an income tax return is an ideal by itself.

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