Out of Chaos an organizing newsletter
Tax Season 2013
No, that isn’t a typo… Tax season is upon us and no time is better to see what is –and what is not — working in your record keeping.
Now don’t stop reading the newsletter because it is about taxes. Along with apartment moves and the holidays, tax time is high season for the Perfect Daughter’s know-how. And now is exactly when the holes in your tax prep become apparent. Are they too cumbersome? Not specific enough? Whenever a client asks me if they should keep a piece of paper, I ask if it have any legal or tax ramifications. Most documents (and digital records too) that we save are really meant for this time of year.
Take, for example, charitable donations. While you may write a check for a charity dinner for $500, only $350 of it is tax deductible. Many of my clients look through bank and credit card statements for expenses to itemize yet they can’t be sure what portion of a given expense is fair market value (not deductible) or the donation (deductible!). My thoughts? Don’t use summaries. It is too time consuming and inaccurate.
For me, anything deductible (co-pay, charitable donation, taxi fare) gets a receipt saved and placed in my old school accordion file. Sure, this system is paper-heavy, but it works… for now.
Everything is becoming more and more digitalized. So I follow the same rule for my electronic receipts that I have for all my hard copies. I make a ‘digital-mirror’ of my paper system on my virtual desktop. (See newsletter no. 8). In practice, this means that I have a TAXES folder on my computer, just as I have a TAXES folder in my file cabinet. By mimicking my paper system, I’m in good position for the day when everything digital. For example, if I make an online donation, rather than printing out the receipt, as I used to do, I can now put it in “charitable deductions” sub-folder in the TAXES folder on my computer desktop. This adds a tiny step at tax-prep time, but it is space- and paper-efficient. I lay strong odds that in 10 years, most of my tax-prep will be in digital form and only a very small bit will still be paper. And I’m ready.
So, here is your assignment: while you are putting your taxes together this year, take note of what is working. Do you always know where your 1099’s or W-2’s are, but not so sure if you are capturing all of your medical expenses? Take note, and after you pull 2011 out of the file cabinet, spend a few minutes creating a system that will make Tax Season 2013 a breeze!