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Has Procrastination Turned Tax Prep into a Fire Drill?

The Clutter Fairy’s quick sorting process will get you organized to beat the deadline.

TAXESDoes 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!

  1. 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:
    1. Personal Income and Bank Stmts—For any earnings statements, W-2s, 1099s, etc. Include all your bank statements in here as well.
    2. 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!
    3. 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.
    4. Business Deductions—For any expenses related to your business.
    5. 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.
  2. 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.
  3. Time to sort! Work your way through the contents of the gathering bin and decide how to handle each item:
    1. If you’re ready to discard it, it goes in the trash, recycling bin, or shredder.
    2. If it’s not tax-related but you want to keep it, into the Non-Tax Keep box it goes.
    3. Does it support your tax return? Then sort it into the correct tax-related box.
  4. 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.

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2 comments to Last-minute Tax Season Fire Drill

  • Kinetikat

    Hi,

    I’m in the UK, so the tax return detail is different, but the reality is the same – and I have four years of tax returns outstanding.
    I have been self-employed as an author/illustrator since June 2003, and for the first few years, doing my own tax return was easy peasy – I even got tax refunds from the Revenue because I didn’t actually make enough money to pay tax! LOL
    But then, at the end of 2006, my husband died, and since then I have just gone into a flat spin as far as papers and tax returns are concerned.
    My husband left several life insurance policies, which we benefited from, and put the money into a portfolio of investment funds (bonds), which pay a fixed amount every month, giving me and my daughters a smallish but steady income. I have not worked properly since my husband died, but I am still registered Self-Employed and am expected to submit a tax return every year. The biggest problems are (1) that the whole complication of the insurance payouts and investment funds etc just panic me totally, and I have no tiniest idea how to deal with it all regarding tax, and (b) while I have always been disorganised and untidy, in the almost-four years since my husband died I got much worse, to the extent that I barely opened any post for months on end, just unable to deal with any more decisions or pressures, I guess.
    I am improving now – thank God – but I am now receiving late tax return penalties of £100 every month or two from the Revenue, and I know I have to deal with it all, but I’m afraid (after three house moves in the last three years) that even if I look at every scrap of paper in every box and pile in the house, I might not even have the correct paperwork any more, and I don’t know where that leaves me. It’s no use me employing a tax lawyer, because I tried going to one, and she said, ‘Sure I can help – just bring me the papers the Revenue ask for, and I’ll do your tax return for you.’ If it was just a question of doing the return, I’d be laughing, more or less! It’s the fact that I don’t have any idea where to find most of the necessary papers.
    Any suggestions?

  • Hi Kinetikat,

    I’m sorry for your loss.

    Your reaction to managing paper after your husband’s death is a typical one. It’s hard to see processing the mail as a priority after the death of a loved one. Don’t feel alone in that response! I have a few suggestions for you that might help.

    1) Since you’re 4 years behind, you need to mitigate the damage going forward. I would concentrate on the paperwork for the most recent tax year first, since that paperwork is probably still easily accessed, and then another year won’t become past due and start earning penalties.

    2) I’m sure you’re overwhelmed at this point with lots of paperwork backlog, and it makes you think “I might not even have the correct paperwork,” so you feel unable to continue on the project. The truth is, you might have all the correct paperwork, and even if you don’t, you need to know what’s missing, so there’s no way around sorting through the backlog. If you’ve ignored the paper, you probably haven’t thrown away anything important, so it’s just a matter of unearthing what you need.

    3) This is where a professional organizer who specializes in paper would be useful to you. It may seem like an extra expense, but you’re already spending money on penalties and interest, and those will go on forever if you don’t deal with the situation. But the cost of an organizer will stop as soon as the paper gets sorted!

    An organizer can go through the paper faster than you could do it yourself. If you pay someone to help you plow through all your paper and sort it by year, then you can take that to an accountant and let them tell you if they have all they need to file the missing years. After the few years where all the life insurance payouts are filed, then you are back to regular returns that you know how to do yourself.

    4) Professional organizers in your part of the globe can be found at APDO—check it out and see if you can’t get some help. Even if you only hire an organizer for a short time, it’ll be that much less you have to do alone, and an organizer can get you started on a system for sorting the paper.

    5) Lastly, try not to worry. The paper is there, you just have to open all the envelopes and file folders to find it. You can most likely file a return based on estimates, and then file an amended return later if need be. An estimated return at least stops the flow of interest and penalties. Then later when you unearth everything, if you find that you need to change some numbers, file an amended return.

    Hope those suggestions help! Report back on how it’s going. I’m sure others can relate to this situation!

    Best of luck to you,

    Gayle

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