This may sound like another New Year’s resolution, and it is in a way. But if you found yourself stressed out over the last month, trying to find papers and receipts to give to your accountant, you’ve got to be thinking, “There must be a better, simpler way!” And there is.
- First of all, write down the categories of papers that your accountant asked for. Not everything you gave him, because often people give the accountant way more than they ask for only to pay a higher price for the accountant to sort and make sense of it. So give him/her what he wants and no more.
- Now make files for those categories. I’m a big believer in specific folders for: Business Expenses, Medical Expenses, Investment income, Income receipts, charitable contributions, etc. Think in terms of your line items. If you have one filed just called “Tax Stuff” you’re going to have to sort it next year anyway. Put the files close to your desk and drop in statements and receipts all year long. At the end of the year you can tally and staple these receipts together, voila – no more sorting for the accountant.
- If you pay taxes quarterly, make monthly files for income/expenses. Get your First Quarter 2012 together now. It’s much easier to gather statments quarterly than annually.
- Use one bank account and one credit card for business. If you have a card that offers a year end statement – that’s perfect – they will categorize your expenses for you! For miscellaneous cash expenses for business, just remember to get a receipt and drop it in your Business Expense file.
- If your family needs to keep track and itemize out of pocket medical expenses, have a folder for those receipts as well. You can keep another Medical file for each member of the house which contains medical reports, labs, diagnosis, etc. That you keep forever. The expenses file you can clean out each year.
- No need to keep weekly paystubs once you get a correct W2 form. And no need to keep ATM receipts if you are balancing your bank account every month. The monthly statements will support the transactions.
- Finally, once you have your tax “back-up” ready, pull it out of the filing cabinet and put it in a manila envelope marked with the year. In some cases you may need a banker’s box. Give the accountant what he needs and then file the completed return with all the back-up info. As you put in this years, shred the tax file that is 6 years old. *
*always check with your accountant about what you can toss – everyone’s circumstances are different but 6 years is a general guideline.