Tax time comes the same time every year but most people habitually wait until the last minute to get their tax information together and then expect the accountant to work miracles with the shoeboxes full of receipts and lost documentation. There is a better way to get prepared that not only causes less stress for you but less money that is due to your CPA. Tax time is stressful enough so why not simplify your life once and for all.
Resolve to Make Changes
A popular New Year’s resolution is to get organized but it is such a broad statement that many people have limited success if they succeed at all. Your financial life is a key element in the rest of your life, so it is important to place extra emphasis on that specific niche when it comes to getting organized. Vow instead to organize your money.
Establish the All-Important Budget
If you don’t have a budget, you are behind in the game. You have no idea how much you really spend, where you spend it, or what amount of money is coming in. This means the finances you have are certainly not organized. It’s a nice thought to think you can do it all in your head but a visual is the best method for effectively dealing with your income and expenses. The easiest way to start a visual budget is to use a free budget worksheet that will allow you to enter information into several columns to account for all income you earn as well as outgoing cash expenses. Here’s a tip: use two different budget worksheets – one for personal finances and one for your business finances.
Institute Better Money Habits
It is not good enough to create your budget and fill in the blanks once or twice. You need to commit to instituting better money habits into your life. For starters, you should set aside a day and time each week to go over money matters, including what expenses you had, what bills to pay, and how much money came into the business. This is essential to avoiding missed payments, penalties, and late fees and will keep you in the loop at all times as to how you are doing financially. Update your budget each and every week.
Coordinate a Filing Center
One of the worst issues most taxpayers face at the end of the year is finding their relevant documentation from the beginning of the year. Lost receipts, donations, and other potential deductions are not provable without backup. It is essential to get a filing folder or small filing box specifically reserved for your tax information. Each week gather all relevant paperwork and store them in the file. Highlight the amount spent and note on the receipt what the expense was for. Additionally, it can help you to attach a sheet of paper to the side of the folder or lid of the box for your additional notes and comments that will be helpful at tax time.
Saving Money Requires Advanced Preparation
If you keep all your financial matters organized and in one location throughout the entire year, when it comes to tax time the fact you’ve done the math and have all relevant information prepared and ready to go, the charges for tax preparation can be considerably lower. You may even be able to forego the need for professional help. If your taxes are not complex, you can e-file online or use tax preparation software that lets you plug in your information for much less than professional accountants would charge.
More Organization, More Savings
In addition to the savings you will earn with tax prep and other accountant services, you will also most likely save a lot of money over the course of a year simply because of your proactive methods for handling bills and other finance matters.
About the Author
Debbie Dragon is a professional freelance writer, specializing in personal finance. She frequently writes for Vertex42.com which offers a large selection of free spreadsheet templates and financial calculators.
Image: Michelle Meiklejohn