Organize More

According to sources from the IRS, it takes approximately 13.5 hours for the average taxpayer to do his or her taxes! Is this you? Don't you have something better to do with your time?

Step 1: Know what you need to organize your taxes.

The first step (and most important) in organizing your taxes is to know what to keep throughout the year. This allows you to create special files for forms, receipts, and other necessary documentation.

Stay on the lookout all year for tax preparation materials and place them in their established files. This will put an end to the frantic tax-time searches!

This step also allows you to stop storing paperwork not relevant for tax purposes. Most people automatically hang onto utility bills, canceled checks, credit card statements, and bank statements for tax purposes. Unless they support any of the deductions you will submit, they are of no use at tax time. As an example, it's only necessary to keep old utility bills if you use part of your home exclusively to run a business, in which case a percentage of the utility bills can be deducted from your taxes. Only keep the records you need in your new system to organize your taxes. The rest is just clutter.

TurboTax offers a tax preparation checklist to help you identify the information needed to organize YOUR taxes. Print it out and use it to create folders for your tax information.

Step 2: Create a home for your tax information.

Will your tax home be in a file drawer? A separate filing box? Or maybe an expanding file for portability? Regardless of how your tax information is kept, it is important to make sure it is collected in one place and easy to access. If you have to hunt for your tax files, you won't use them.

If you have a business, it is important to keep the business information separated from your personal taxes. You can duplicate the system with folders and even have your business and personal tax files in the same drawer. However, organize the information in a way that makes it easy for you to know what is personal and what is business. You may even want to try color-coding the files for easy separation

Another option is to go paperless and scan all of your tax documents into electronic files.  You can find out how to do this here.

Step 3: Make file folders to organize your taxes.

One of the major time wasters and stresses in filing taxes is looking for all the receipts and supporting documentation. Creating a home for the needed paperwork will allow you to find it when you are ready to file your taxes. This is where the tax preparation checklist will come in handy.

The files will look different for each person and possibly each year, based on what categories you need at the time. So it is important to keep the system flexible and easy to maintain.

You have two options--create your own, or purchase a pre-made tax file organizer. Regardless of the system, you will want to take the guesswork out of what receipt belongs in what folder. Simply write on the outside of the folder examples that make sense to you.

Using software such as Quicken or Microsoft Money can also be a big time saver if you have it set up appropriately. Create the same categories as your files to really make an effective system for yourself. You will be able to generate end of year reports and have the total amount for each deduction at your fingertips.

Step 4: Evaluate and improve for next year.

Take what you are learning from this tax season to make next year an easier experience. Keep a note pad near while you prepare your taxes and write down anything useful to improve or start your system. Ask yourself these questions:

• What did I have to hunt for?
• What would have made the process easier?
• What categories do I need to add or subtract for next year?
• How much time did I spend filing my taxes this year? What is my goal for next year?
• How can I organize my taxes even more?
• What would have made this experience more pleasant?                                                                               

Step 5: Close out the tax year.

Congratulations! You have successfully set up a system to organize your taxes. But what do you do after you have filed your taxes?

Depending on how much support documentation you have, you may be able to consolidate all of it into one hanging folder labeled with the tax year. Or, you may decide to keep the files you have created as they are and begin anew for the next year. Each year will be its own stand-alone system. Be sure to use it as a model for the upcoming tax year.

It is important to keep all past tax folders together either in a separate filing cabinet, box, etc.

Step 6: Organize your taxes on a regular basis.

Is setting up the system enough to organize your taxes? Not really. The true magic comes when you use it. One suggestion is every time you enter a receipt into your checkbook or Quicken/Microsoft Money, assign it to the appropriate category and place in your tax file. Or, you could claim each Friday as your Financial Day which is reserved to enter your receipts, download transactions from your bank, and place the receipts in their tax folder.

Remember to celebrate your success with friends, especially if it took you less than 13.5 hours and you completed your taxes before April 15th... use the "share" button below to email and repost this advice.