Are you breathing a sigh of relief that tax day has come and gone? Many people wait til the last minute, and truly pay the price, both in money and anxiety. At the last minute there is scrambling to gather documents. When should you have started compiling documents for the 2013 tax year? On January 1, 2013. Yes, four months ago.
I recently received an email from a woman inquiring what files she should set up for the upcoming tax year. When it comes to files, my motto is to keep it as simple as possible. The one critical file I encourage all my clients to keep is a very general, “tax” file. For this year, mine says “Taxes 2013.” And while I have files for various other topics, the main folder simply says taxes. In that folder goes any donation forms throughout the year, tax statements (property, estimated quarterly), and year- end 1099s for investments and mortgage interest. In February, I go through the file and do my taxes.
I pay most of my bills via credit card. I’m able to print out a year end summary, so any expenses I itemize are in one area. For those bills I pay via my bank account, at year end I print out my monthly bank statement, and calculate my expenses from them. In most cases, having a separate folder for each tax item is just plain crazy. I try to limit the amount of paper that comes into my house. Because once paper comes in, it rarely goes out again.
Why does the uncomplicated system work? Because it is simple.