Tax Headache Prevention

I’m a mom, wife, and small business owner.  Like many of my contemporaries, I manage school work and extra-curricular activities, the family schedule and nutrition, as well as the household day to day finances – including taxes – on top of managing clients’ projects and needs.  Every year I plan to start and complete our state and federal obligations earlier than the previous year; sometimes I succeed, other times I don’t.

This year I finished before required, but later than I wanted.  Regardless, I finished and yes, I checked off a large box on my TODO list and I felt justified in the generous pour in my wine glass that night.

Some projects require more attention than others; time without a house full of people running around or questions being asked; so I carve out time after the kids go down or before they wake up to tackle these types of projects and I plot out each session methodically to make the most of my time.  Completing our taxes is one of those projects.

As the tax season has officially ended, I wanted to share this note:  The systems for organizing a home is the same as organizing for taxes and once that system is in place, the time spent on that project is more productive when you are not searching for the tools you need to complete it.

I’m not an accountant or a tax advisor.  I am however someone that knows how to keep, store, and access things.  So here is a breakdown of my system.  It’s simple but it works for me.

As our family taxes revolve around our mail, our purchases, and our bills, this is how I prep them – a tiny bit, every time I touch them, all year long…

·         When I deal with our snail mail, I quickly sort it to the trash or to the bill pay pile.   This takes seconds out of my day.

      When I deal with our email, I do the same by deleting or flagging or starring said email.

·        When I deal with brick & mortar purchases as well as online purchases, I hang on to relevant receipts in whatever form I have it by one of 2 ways.  Paper form is labeled and then moved to marked envelopes and digital is labeled and saved in marked folders.

·        When I deal with our bills, I review our purchases and quickly highlight noted items that may be used at the end of the year – this can be done both on paper and digitally but doing it immediately is important because at the end of the year, I generally do not remember what that purchase was for. 

How I label is determined solely by my family’s financial needs and as a small household with a small business, I keep it simple and don’t over categorize.

These are the envelope and file categories I like…

·         PAPER ENVELOPES:

o   12 Monthly envelopes– if you happen to keep all of your receipts because you don’t know if you’ll need them again later (refer to the urban legend of the COSTCO return policy and you might start keeping all receipts), have an envelope for each month of the year.  At the end of the year you can go thru them if you are missing a purchase you need to claim, toss them, or save just the Costco ones so that you know how many jars of the peanut butter filled pretzels you bought in your lifetime.

o   Project Expenses – can be labeled anything but keep them separate; for example we own a rental unit and every time we spend money on it, that receipt goes into an envelope labeled RENTAL UNIT and yet all of my business related purchases are labeled with the project name and moved to an envelope labeled BUSINESS EXPENSES . 

·         DIGITAL FILES:

o   Tax Receipts and/or Other Receipts

§  Each of the PDF’d receipts need to be saved with a name that explains it and saved in a file that is descriptive.  Take the time to rename the pdf after it is downloaded; it will save you much frustration later.  Then save it to a file marked for the year and purpose for example: 2019 Tax Rcpts.

§  Assume that at some point you will put a receipt in the incorrect file, but, if it’s labeled, you can find it later.

o   Exports

§  When paying your bills, if you export your credit card and bank statements when you pay them, take the time to highlight as noted above and save each export naming it consistently so the titles will match.  I prefer to use a number/name combo to keep things organized by date such as 2019.01VisaCCExport.

I’ve blogged a few times about categories and taking the 6 min a day to do something immediately to keep a household organized and my taxes are no different.   My taxes are a yearlong project that I spend less than 2min a day on so that when I start to do my taxes, everything is already at my fingertips.