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Tax Preparation – 10 Ways To Organize for Taxes:

I hate tax season. Doing my taxes is right up there with torture in my opinion. I always end up waiting until the last minute to organize for taxes – which I’m sure makes it significantly worse.

After the last two years of less than stellar organizational and tax follow through which led to some tax penalties, I’m changing my ways.

There are three major aspects to preparing for tax season.

  1.  Review your finances to find extra deductions and write-offs
  2. Organize your documentation to ensure you have the correct paperwork to substantiate your deductions and write-offs
  3. Review your personal life for changes that may affect current and future tax periods.

It sounds simple huh.

If you are tracking your life on a monthly basis and keeping track of appropriate tax paperwork, it is pretty simple. 

Unfortunately, most of us wait until the last minute.

10 Ways to organize your finances now for tax season:

1. Charitable giving

Charitable giving can be a huge write-off, more importantly, it is the right thing to do. If you have been thinking of contributing to charity, now is the time to do it.

If you are going to contribute to a charity, do your research. Many charities use a large portion of their funds on day to day management and only a small portion of your money goes to the intended recipient.

One of the best tools available is They use data collected from IRS form 990 to determine how much money is actually being used for its intended purposes. Some tax-exempt churches don’t have to file the 990, so make sure you know and trust your church if you choose to donate to a church.

I try to use my money wisely and expect charitable companies to do the same.

2. Review your retirement contributions

If you are participating in a traditional 401K plan you may want to consider increasing your December contribution to lower your tax liability.

This won’t work for Roth 401K’s, but I still recommend adding a bit of extra – I’m all about maxing out retirement contributions.

If you don’t have access to a 401K plan, you can always open a Retirement IRA. Again I recommend a Roth IRA which doesn’t have tax benefits in the current year (we are thinking long-term here). However, if your income exceeds the IRS Federal guidelines you can also open a traditional IRA get the tax benefits and then do a backdoor conversion. If you go this route, you will be essentially moving the tax savings from one year to the next year since you’ll end up paying the taxes when you do the conversion from a Traditional to a Roth IRA.

If you are struggling to figure out your retirement planning check out some of the free tools offered by Personal Capital.

3. Prepay your Mortgage or Student Loan payment

If you are itemizing your deductions you can write off a portion of your mortgage and student loan interest.

By making an early mortgage payment the interest you pay will be included in the current years 1098 form. You can only write off a percentage of your mortgage interest, but depending on your current interest payment this could save you a few hundred dollars.

The same policy applies to student loans.

4. Gather Your Receipts

If you are itemizing deductions it is time to start reviewing your spending for the current year.

This is the time to start gathering receipts. I try and keep mine sorted on a monthly basis, but still find myself digging through hundreds of receipts to get everything sorted.  I’ve started saving my receipts for taxes in an expanding file like this one and it has really helped.

Aaron and I have a decent amount of 1099 income, so we track our travel, meals and business-related expenses. I’m fairly conservative in their area and am careful to only use true business expenses. The minimal savings isn’t worth the hassle of dealing with the IRS later.

We do have a room set aside in our home for business, so I also keep copies of my utility bills and other household expenses.

5. If you are self-employed review your potential deductions

I’ve covered this slightly above, but for those who are self-employed, you have a whole different level of accountability. You need to review all of your income, ensure your quarterly reports are being made and then finally start looking at potential deductions.

I’m not an account and beyond the basic don’t feel comfortable giving advice. I highly recommend this article that details additional measure you can take as a self-employed individual to prepare for taxes.

6. Did you have any major life changes that will impact your taxes?

Life events that may impact your taxes are typically associated with birth, death, and marriage. However, if you have older children leaving the nest this will affect your taxes as well.  We had a baby this year, so I’ve got to make sure I have all of her personal information to provide to the accountant.

Carefully review any potential life events and make sure that they won’t have an impact on your taxes.

7. Review your Will or Estate Plan

Federal and state tax and estate laws change frequently. Personal situations change frequently as well. If you have kids or a large estate having a will and estate plan is critical.

Double check with your attorney if you have a complicated plan.  You don’t want your heirs to be caught holding the bag because you didn’t update your records.

If you are using the basic form from an online system like LegalZoom. I recommend redoing your will every 3-5 years. This will ensure you are up to date with applicable laws, but also helps you review your personal situation to ensure your family needs are still met.

8. Use any excess funds in your Flexible Spending Account

My company doesn’t use Flexible Spending Accounts, so this one doesn’t apply to me. However, I know a lot of people who use these accounts and not everyone knows that FSA accounts are a use it or lose it benefit.

Check with your human resource person and if you are on an FSA account use up your funds asap.

Please note that FSA accounts are separate from an HSA accounts which will roll over from year to year.

9.  Contact your accountant

Touch base with your accountant towards the end of each year.  He can alert you to any major tax law change.  He may also have suggestions for additional deductions or tax write-offs that you may not have considered.  A good tax accountant can save you thousands of dollars.

I used to prepare my own returns using Turbotax.  It was fine until my personal finances got more and more complicated.  The accountant I used for work offered to do my return for free if I switched to him.  I had already done my return through Turbotax but figured I might as well give it a shot.  My accountant prepared the return and I ended up with an extra $1,300 refund.  Don’t underestimate the power of a good accounting professional.

On a side note, it is very important that you know how to organize tax documents for your accountant.  The more organized you are with your information the cheaper the process will be.  I personally use a tax binder similar to this one that saves me so much time.

10. Review your previous year’s financial goals and set goals for the new year

I know this won’t help you immediately with taxes. However, if you start now to set your financial goals one of your primary goals can be to set up your finances to make future tax seasons easier.

(You can download my simple free goal planning template if you need help setting up your goals.)

For example, in early January I created a folder for any tax documents I receive. As soon as I start getting W2’s, 1099’s, 1098’s and all the other junk, I immediately place it in my folder. Once February/March hits and I’m ready to start preparing for taxes I know exactly where to search for my documents.

Another goal I made last year was to track my receipts better. Now, whenever I clean out my purse I organize them and place them in an expanding file. It is so much easier to find all of my health receipts when I have them clearly marked and in one spot.

Tax Preparation Makes Tax Season Bearable

Paying taxes is miserable.  If you spend the time and organize for taxes now, the whole process will hopefully be a little bit easier to stomach.

I used to be very organized and had an easy time doing my taxes.  The last few years, I’ve slacked off and as a result tax season hit me like a ton of bricks.  I was scrambling around trying to find documents and realized I had missed some deadlines because of lack of organization.  I finally got everything cleaned up, but it took a lot of extra time because of my awesome procrastination abilities.

This year, I’ve got virtually everything organized and should be able to send everything to my accountant in early February.  Wish me luck!