The Bank Note's savvy readers came through again with smart ways to prepare for tax time. Thanks to everyone who emailed us. Our selected readers each received a $25 Nationwide Bank Visa® gift card* for these helpful tips.
I prepare for tax time by pulling out my previous tax returns. This jogs my memory about what paperwork I need to collect. Then I organize my receipts by category and create an envelope for each: charity, medical expenses and so on. This makes it a little less painful when it's time to do my taxes.
My husband and I prepare for tax time by considering whether we have any changes in the new tax year from the prior tax year. This includes changes in our earnings, or deductions, as well as changes to the tax code, made by Congress at year end. Then, I usually take last year's forms and plug in a few new numbers to reflect the changes and use the IRS web site to find tax tables from last year to get an idea of what our taxes will be this coming year so there are no surprises.
At the beginning of each year, in January, place a large 'Tax folder' on your desk or other convenient spot. All year long, place any 'tax' related receipt or item (charitable donation, sale of stock, dividend statements, etc.) in the envelope. Jot down helpful tax notes on the front of the folder to jog your memory at tax time. As you receive your year-end tax statements (W-2's, 1099's, etc.), immediately place them in your tax folder. In February, when you are ready to prepare your taxes, you will be surprised when seeing all the receipts in your folder, and notes you jotted down on tax things that you had long forgotten about, and otherwise would not have recalled. Everyone I recommend this tax practice to finds it very useful.
We keep a calendar to write down all our tax-related mileage. No more guessing how many times we drove to school for the PTA or other volunteer work. Several times throughout the year we take this information and put it into a spreadsheet. It might not seem like much, but those few miles a trip really do add up over the course of the year.
Tax time can be extremely stressful. I find that if I spend 30-60 minutes each month sorting through receipts, logging them in a spreadsheet, and preparing a file I don't get so stressed when it is time to turn those items in come the due date. My tax preparer also takes less time preparing my taxes because of my organization. That saves me on his hourly fees.
We start every calendar year with a new check register in our checkbook. Then every transaction that will be a tax deduction (charitable gifts, real estate taxes, etc.) during that year comes out of that account with a check. That forces us to have good documentation for all of those expenditures from one source. Also, a great place to start each tax season is by downloading the current tax year Publication 17, Your Federal Income Tax. It is a wonderful overview resource, especially the first section, called "What's New?" to identify changes that may be of benefit.
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