The Clutter Fairy’s quick sorting process will get you organized to beat the deadline.
Does tax season sneak up on you every year? One day you’re toasting the New Year and thinking you have all the time in the world to get ready for April 15. Before you know it, you’re scrambling to get your papers together because you’ve almost missed the filing deadline. It’s never fun, is it? I speak from experience, by the way. I’m a CPA, but I hate doing taxes as much as anyone else!
My theory about why people put off tax preparation year after year is simple. You realize that tax-related papers are scattered throughout your home office—and maybe in piles on the coffee table, on the kitchen counter, or in the entryway. Gathering and sorting those papers seems unpleasant in every way, so you put off the ugly task until “later.” After all, on January 1, you still have 3-1/2 months until the deadline to file your return. Time flies until right about now, when you suddenly realize that you and your tax preparer only have two weeks to get your return together!
Turning tax preparation into a fire drill only makes the inevitable task more unpleasant. It’s too late to avoid that part of the problem for this year, I’m sorry to say, but even this late in the game, there are things you can do to streamline the work that’s facing you. I offer the following quick sorting process to find the paperwork you need, ignore the stuff you don’t, and assemble your vital tax paperwork in time for the IRS deadline.
The Clutter Fairy’s Last-Minute Tax Season Fire Drill
First, get out last year’s tax return, and look at the types of income and deductions that actually ended up on the tax return. Most people’s returns look similar from year to year, so your last return is a good guide in preparing for this year.
Your tax preparer only cares about paperwork that supports numbers that are going to be on the tax return. If a document isn’t related to income you earned or deductions you can claim, it doesn’t matter to the tax preparer.
For example, many people believe they need to consider all their medical receipts. But do you really? Although medical expenses are deductible, very few taxpayers meet the conditions to take a deduction. Unreimbursed medical expenses are only deductible if they exceed 7-1/2 percent of your Adjusted Gross Income. So if your AGI is $50,000, the first $3,750 of your medical expenses ($50,000 x 0.075) effectively doesn’t count. Before you spend time gathering your doctors’ bills and prescription receipts, make a comparison using ballpark figures for income and medical expenses. If you determine that you didn’t spend anywhere near that much out of pocket, you don’t need to worry about medical receipts.
Simpler yet, if you take the standard deduction every year, there isn’t much paper at all that needs to go to the tax preparer, only documents related to money you earned—bank statements, investment statements, W-2s, any type of 1099s—and not much else.
If you have a business that gets reported on a Schedule C, then everything related to the business income and expenses needs to be gathered up. But it should be easy to separate business and personal expenses. Keep the business ones, skip the personal ones.
So, are you ready to start sorting? It’s easy!
- Collect the materials you’ll need to get started: a few sorting boxes, plus a trash can—and a recycling bin and a shredder, if you want. Mark the sorting boxes as follows:
- Personal Income and Bank Stmts—For any earnings statements, W-2s, 1099s, etc. Include all your bank statements in here as well.
- Personal Deductions—For any paperwork that supports deductions on your return. If you use the standard deduction each year, you don’t even need this box!
- Business Income and Bank Stmts—If you have a business, this is for anything that supports income earned by the business. Include business bank statements here.
- Business Deductions—For any expenses related to your business.
- Non-Tax Keep—Put anything in here that you want to keep that doesn’t have anything to do with taxes. This stuff becomes an organizing project for another day.
- Get one big box or bin and gather all the paper you have lying around everywhere. Pick up every pile you suspect might have tax support paperwork buried in it, and put it in the bin. Clear off all the places you have been stashing paper, and put the piles in the bin.
- Time to sort! Work your way through the contents of the gathering bin and decide how to handle each item:
- If you’re ready to discard it, it goes in the trash, recycling bin, or shredder.
- If it’s not tax-related but you want to keep it, into the Non-Tax Keep box it goes.
- Does it support your tax return? Then sort it into the correct tax-related box.
- Once you’ve emptied the gathering bin, you are ready to submit your info to the tax preparer. If you want to save some money, consider summarizing the data before you turn it over to your tax professional. It should be a breeze to add up the numbers on a spreadsheet now that you’ve got all the pieces sorted. Anything you do yourself is one less thing the tax preparer will have to charge you to do.
If you still haven’t learned your lesson to get ready for tax season earlier, then save this e-mail so at least you’ll be better prepared for the fire drill next year!
This article was featured in our March 2009 e-mail newsletter. To subscribe to our newsletter, please use the “Subscribe” form, above right.