Today is the day many people dread…TAX DAY. Poor April 15th gets a bad rep. It can be a stressful time for many as they scrounge through receipts, look for discarded papers, and make last-minute appointments with their accountants to get their taxes filed by this time. In years past we’ve both been pretty lackadaisical when it came to prepping for tax season. But now that we own a small business together, we’ve been forced to get our act together early on so we can stay organized & get our taxes done on time..or even early!
We certainly are not pros when it comes to this stuff (we’re not exactly math or finance whizzes…), but we do have a few techniques that we use year-round to make tax season a bit easier. So whether you’re just filing your personal taxes, or you’re a small business owner too, we hope you’ll takeaway a few tips from today’s post.
So without further ado, here are 6 tips to make tax season easier next year!
1. Come up with a system for receipts, income, & expenses
Now that the 2015 tax year is behind us, you can start fresh with a good plan for 2016. That means you need to come up with a system for your receipts, income, and expenses and stick with it! Holding onto receipts can be a big pain, but it’s a lot less stressful when you have a plan in place. We each have separate file folders for our personal receipts and our business receipts. These file folders are then organized into 12 separate tabs, one for each month. Whenever I buy something that I know is tax deductible, I save the receipt in my wallet. Once my wallet gets a bit full, I file it into the appropriate folder and month. But instead of saving this big massive folder to deal with at the end of the year, I enter the receipts into a spreadsheet every other month or so. I note the amount, date, and also categorize it (travel, food, medical, etc.) That way it isn’t an overwhelming task at the end of the year.
When it comes to income, Finn keeps a very detailed record of what’s coming into our bank account for The DIY Playbook. Then come tax time, he is just able to print out his excel document and give it directly to our accountant. If you’re just starting to track your income, then we suggest starting small with a google doc that outlines what’s coming into your bank and from whom.
2. Create a designated “spot” for tax items
So we have our little file folders for receipts, but there are also other tax-related documents that come your way. We have an electronic file filled with those important documents, and also keep all hard copies in a file folder. Come up with a system that works for you to hold onto those important papers. You don’t want to be scrambling to find these at the last minute, so hold onto your W-2’s, 1099’s and other important documents and put them in a safe place.
Also figure out a space for your old tax documents. We originally kept ours in our file cabinet, but after a few years it took up way too much space. We now have a nice large box that houses all of our tax info from previous years.
3. Find a pro you trust, or make a plan to do your own
Come up with a plan for how you’re going to handle your 2016 taxes. Doing them yourself? Figure out what software you need and get it way ahead of time. Hiring a professional? Don’t wait until February or March to desperately search for an accountant. Instead, start now! Ask friends, family members, and coworkers for their recommendations. Then meet with your new accountant soon to ask any questions, discuss what they will need from you next year, and come up with a gameplan. It will be much easier for the accountant to squeeze you into their schedule when they’re not working long hours and weekends during tax season.
4. Spend time researching major tax breaks on your own
Just because you’re using a pro, doesn’t mean you can’t do some homework on your own. If you had any major life changes (bought a house, had a baby, had a medical emergency) make sure you look into the tax benefits that go along with these big events. Then when you meet with your accountant, you’ll know what to bring up and discuss.
5. Save old tax returns digitally
If possible, save old tax returns digitally in a secure spot (you can put a password on the file) so they can easily be accessed. When it comes time for big life events (applying for a mortgage or life insurance) you will have your returns at your fingertips. Of course you should also keep the hard copies of your returns, but having the digital files instead of the 40+ paper stack will prove to be much more efficient.
6. Practice good habits year-round
This one should be a no-brainer, but it’s actually the hardest tip to implement. When it’s the middle of summer and tax season isn’t for another 9 months, it can be easy to push off thinking about it. Instead, make these habits a part of your routine. File your receipts, update your spreadsheets, and keep in contact with your accountant. This will save you a lot of time, stress, and heartache come April.
So what do you say? Ready to make tax season a heck of a lot easier in 2016? We sure hope so.
As always, we’d love to hear YOUR TIPS! We have lots of room for improvement, so let us know what works for you.
And for more tips on how we handle our blog’s finances, check out this detailed post.