Whether it’s the start of the tax season, nearing the end or somewhere in between, it’s always a good time to get organized. While some of you folks out there know how to prep, there are some of us who will procrastinate until the last moment and try to remember where we placed all those receipts throughout the year and the documents that started flowing in during January. Now (whenever that is) is a great time to change that using some of tips and information below to get started.
NOTE: For Maryland residents, the deadline to file 2020 taxes has been extended to July 15, 2021 for certain filers. Check here for more information. Also, the federal deadline has been extended to May 17, 2021.
Organization
Organization is key to making the process easy at tax time. Here is a little help you can do now to either prep for next year or get this year in order. Some prep work and a little habit building now will help you tackle this big task in smaller increments throughout the year. Like with most things, it’s about making it a habit and something easy to do so you won’t forget. Let’s set up where we will store important documents and records throughout the year.
Accordion folder
We couldn’t write this article without noting this old-school, tried & true way to organize your documents. What these things lack in beauty, they make up in function and budget. There are a ton of options out there, from your very basic paper folder to fireproof and water-resistant organizers.
One of our favorite features are the folders that already have color coded sections to make organizing easier. Just designate which color will represent each category and throw those receipts in the slot based on how it gets written off (clothing, food, office supplies or anything else your CPA recommends).
Another type of folder that is great if you are on the go are the compact folders with a zipper. Keeping this in your vehicle as you travel for your business makes storing receipts and invoices a little easier. Having an accordion folder set up will help make it easier for you just drop whatever document you have in the appropriate spot quickly and consistently. Then when tax time comes around, you can reference the desired section and begin your taxes. This method is easy to start and won’t break the bank. Check out some examples below.
Digital Organization
This one does require a little more prep, but it’s a great free option and allows you to organize using your phone and computer. For this option, you can use your Cloud storage, like Google Drive or iCloud, or even your computer hard drive.
- Begin by creating a main folder called “Taxes.” This is where you will house all your tax related documents.
- Under that folder, create the next set of folders for each year, like for the current tax year: “2020.”
- Within a year folder, make the next set of sub folders fit your needs. For example, if you want to organize your receipts, name that folder “Receipts” and the subfolders with in there can be called “Uniform,” “Travel” and “Office Supplies.” Do you collect invoice payments to track your income? Make a folder titled “Income.” This option is great because it really can be organized to whatever fits you or your business needs.
- While you’re at it, go ahead and set up labels or folders in your email’s inbox too. With so many purchases happening online, your inbox can fill up pretty quick with receipts. If you buy something online and get an email receipt, plop that email in the right folder or in the case with Gmail, give it the right label and go about your day. You can even create rules so that emails from particular accounts get automatically placed in that folder.
TIP: Using cloud storage gives you the opportunity to snap a quick picture of your receipt with your phone and save it in the right folder using the app like the Google Drive app. Then you can place that original hard copy receipt in that shoebox you usually use (it’s okay, we have one too).
APPs
There’s an app for that (of course there is…) Without a doubt, you will be able to find an app out there that works to help you organize your receipts. These apps utilize technology to digitize the information on your receipts so that they are easier to search and organize. Your only tasks are to download the app, create your account and snap a photo of the receipt or invoice. Then, when the time comes, you can search for specific type of expenses. Many have free options without all the bells and whistles, but if you have a small business and could use a platform that connects with a service that sends invoices or makes payments, most have an option to upgrade that won’t break the bank.
Here are a few that are worth trying out:
Expensify: this platform is a great way to organize your receipts if you are small business or sole proprietor. It uses SmartScan to copy all the details of your receipt into an expense report. You can log on through your desktop or the app. It is free for individuals with limited features, or you can pay $4.99 per month for more features that work for your business.
Receipts by Wave: This is a free app with some neat features and is available on Andriod and iOS. It also sync with their accounting app so you can get more for your small business. It also has an option to email a receipt you have received in your inbox to your account in Wave so that all your receipts are in one place.
Smart Receipts: free to download, this app will let you scan receipts and generate reports in PDF or CSV that you can share. This platform also has the option to upgrade for automatic backups to Google Drive, eliminiate ads and automatically process exchange rate conversions.
There are a ton of options out there, so if you would like to compare more, just do a search on Receipt Organizing App.
TIP: You may forget sometimes time to organize receipts at the very moment your receive them, so to make it easier, designate a time to organize those items weekly or bi-weekly. A good time to do it is when you pay or review your bills. For example, if you pay bills bi-weekly, adding another 10 minutes to this routine will be easier than remembering to do it right after you make the purchase. Utilizing this time to organize the receipts or invoices in the right folder or snap that picture will help make this a habit you can keep up with all year long.
Track
Now that you are all organized, you can start keeping track of all those important items for tax season.
So, what should you keep track of?
Great question! We’ve put together some basic items and made them into a list below, but remember, it’s going to be different for everyone. Make sure you adjust these lists to fit your needs.
Income
Below are some of the items this category can include. Be sure to check with your CPA or reference the IRS website for more information on what should be included.
- W-2- income you received from your employer, shows your earnings as well as how much was withheld.
- 1099- there a several varieties of these forms, but they can show how much you earned from a client if you are self-employed, money received from dividends, distributions from an IRA or pension, money from social security and much more.
- Alimony received that is taxable.
- State refund
The IRS website provides detail information on what is taxable income and what is consider nontaxable income. This is a great reference to determine what you need to include.
Items that can adjust your Income
Keep these documents or records as they can adjust how much of your income is taxed.
- Any alimony you have paid
- Moving expenses you have paid
- Money paid towards Medical Savings Accounts or IRAs
- Student Loan interest paid- Form 1098-E
- Tuition paid- Form 1098-T or receipts for paid tuition
Make sure to check your state or local resources for tax credits that are specific for where you live. For example, Maryland offers a variety of tax credits which you can find here. Some like the Student Loan Debt Relief Tax Credit require applying ahead of time.
Itemized Tax Deductions
Donations
Charitable donations help keep many important organizations in the community running and benefit those that need it most. If you helped through cash donation or item donation and you itemize your deductions, you might be able to deduct them in your taxes. It’s important to keep all receipts for any cash donation you make. As for item donations, special rules do apply and are based on calculating the fair market value of the item. Check out the IRS website for more information on how to determine the value.
Child Care Costs
This can be a big expense for working parents, but can help lower your taxes. Some providers will give you a report for the year, but in case they don’t, track the amount spent for the year as well as their name, address and tax ID.
Home Mortgage Interest
If you paid mortgage interest on your home, paid towards points or PMI (Private Mortgage Insurance), you may be able to include that in deductions. Most mortgage companies will send you the form 1098, but you can also view these costs in your statements. You may also be able to include property taxes you’ve paid.
Other deductions could include:
- Medical Expenses
- Home business expenses if you use part of your house for office space
- Business expenses related to your vehicle
- Adoption Costs
- Union Dues paid
When its tax time
Now that you are all organized and can start this habit of logging your items, come tax time, the process should be a little less overwhelming. If you are doing it on your own, remember filing federal taxes is free for many filers. You can find out more here. If you find that you will be itemizing your deductions or this is your first time, its a good idea to have an accountant or CPA help you file. Their services can range from $150 to $500, but it can be worth it to have a professional have your back and they may be able to find more deductions that fit your situation.
