14 Ways to Organize your Income Taxes

May 19, 2013 - 3 minutes read

Organize for Income Taxes

Each year we all go through the trauma of gathering financial records, organizing them and recording the results in order to prepare our individual and business income tax returns.  Whether you use a tax preparer or not some personal effort is required.  One of the biggest problems with a scorched earth approach to accumulating those records lies in the effort would not be so onerous if information was kept organized during the year.  In fact if the financial information was well organized our tax liability might be reduced or at least better anticipated.  As I blogged recently each person should have a financial plan to retain income, making it is easier.

Organizing your records and improving the result of the income tax process might consist of:

  • Keeping track of income and expense with personal finance software.
  • Reducing the number of brokerage and bank accounts.
  • Accumulating invoices for calculation of the sales tax deduction.
  • Accumulating contribution acknowledgements from charitable organizations.
  • Maintaining mileage records for medical, charitable and business deductions.
  • Accumulating non-cash charitable contribution receipts.
  • Maintain a file of large dollar purchase during the year for sales tax deduction purposes.
  • Requiring your broker or investment advisor to maintain historical cost basis information within your accounts.
  • Requiring your mutual fund investments to maintain average cost basis information.
  • Reviewing your investment holdings to offset gains with losses.
  • Disposing of extraneous information that invariably flows from financial institutions.
  • Separating permanent records and documents such as wills, powers of attorney, life and disability insurance policies from annual financial information.
  • Creating a checklist of items needed to prepare the tax return or using the organizer provided by your tax preparer.
  • Meeting with your CPA prior to the end of the year to discuss planning opportunities.

The organization of your records may instigate a discussion of where am I going financially?  Filing your individual income tax return should not produce a surprise as to the result.  Instead the filing of the return and payment of taxes should be part of an overall personal financial plan.  Take an interest in organizing your financial records and using that effort to not only file a return but also lay the framework for a financial plan.

Photo Credit: Jeremy Brooks