Now that tax season is over, it’s time to get a jump on next year’s taxes.
One of the reasons that tax season is so stressful is that many people end up leaving their documents organized all year. Additionally, many don’t keep up with what deductions and credits they are eligible for. Then, at the end of the year, they are running around trying to figure out how to reduce tax liability.
If you want to reduce your tax liability year round, and keep your tax documents organized, it’s possible to do so if you take a few minutes to get set up, and then remember to keep up with your organization efforts throughout the year.
Set Up a Filing System
Your first step is to set up a filing system. The right filing system can help you keep everything together so that you aren’t looking for it come tax time. A file folder labeled for tax receipts, and placed in a visible area, can be the perfect receptacle for your receipts from charities, as well as your business expenses. Once the receipts come in, immediately file them away. Also, as your documents come in from other places (such as your W-2 and interest statements), file them away.
Keep Track of Your Deductions and Credits Over Time
Throughout the year, make sure that you are keeping track of deductions and credits. Think ahead to what you might be able to claim. Consider items that might be tax deductions, including those for health care, and for business travel. If you know that you will be driving your car for business, keep a log in your car.
As you sell investments, make sure you keep information on cost basis, and other notable information so that you know what you owe in capital gains taxes. Do your best to keep track throughout the year. If you keep a ledger in a handy spot, it will be easier to keep good records that you can easily refer back to later.
If you have personal finance software, it can be even easier to keep track of your tax information. Many applications allow you to mark tax deductible items. You can also usually make notations related to what you can use for taxes, and how the information is used when it comes to your tax bill. At the end of the year, all you need to do is create reports. This can help you add up your expenses quickly and painlessly, and you can put that number into your taxes, or use it help you create a Profit & Loss statement for your business.
Keep With It
Once you have the systems in place that make it easy for you to record your financial information related to taxes, it is fairly simple to keep up with it throughout the year. Take a few seconds to file your receipts and other documents appropriately. It also doesn’t take much time to note tax significant transactions in your personal finance software. When you are consistent about keeping up with your taxes throughout the year, you will experience less stress when it’s time to file your tax return, and likely have more accurate records.