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Year End Tax To-Do List
by Ramona Creel
Tax time – that special time of year when you scramble around collecting
up all of your financial paperwork for the previous year. It’s also the
perfect opportunity to “clean house,” get your personal affairs in order
and start the new year fresh.
GETTING READY FOR THE IRS Start by going through your files and
collecting up all of your tax records for the previous year. Don’t
forget:
business receipts
medical bills and child care expenses (if you qualify for these
deductions)
charitable contributions
year-end statements from your employer and financial institutions
any correspondence from the IRS.
How were all of those records organized? If you don’t already have one,
set up a section in your files labeled “taxes.” Create a folder for each
category above that applies to you. If you take multiple medical or
child care deductions, you might need a file for each family member. And
you are welcome to break your business expenses out into smaller
categories -- such as “supplies” or “travel” or “professional services.”
If you use a computerized accounting program, take a few minutes to get
it updated for the year. One of the best habits you can get into –
especially if you run a small business or need help with household
budgeting – is to set up a regular schedule for recording your expenses.
Create a folder or basket for accumulating receipts, and sit down once
each week to log everything into your computer. Tax time is much easier
when you can simply hand your accountant a disk, rather than a shoebox
(or garbage bag!) full of paper.
ARCHIVING
Once your taxes are filed, you will need to hold onto the supporting
documents for these records for 7-10 years, in case of an IRS audit. If
you aren’t taking business deductions, the general rule of thumb for
keeping personal financial records is 3 years. And, of course, you want
to keep some items FOREVER – such as your tax returns, vital records,
proof of final payment on a mortgage or student loan, etc. However, each
person’s situation is different, so talk to your CPA or attorney before
you throw something out that you might need again.
CLEANING OUT YOUR FILES
However, there are many documents that you can easily get rid of at the
end of each year. Does your investment broker provide you with an annual
“summary statement” that lists your transactions for the year? You need
to keep those year-end summaries -- plus any trade confirmations
(buy/sell) -- for as long as you have the account. But you can pitch any
other monthly or quarterly statements.
Let’s talk about medical paperwork. You certainly want to keep your
medical records (lab results, vaccinations, information about illnesses
or injuries). But unless you are taking a medical tax deduction or are
in a dispute over the payment of a bill, do you really need every
receipt that shows you paid your $10 co-pay?
Also ask yourself why you need to keep cable, phone, or utility bills
for more than a year or two. If you need a long-running record of your
payments, you can get it from the utility company. Unless you are in a
dispute, buying a house, or trying to obtain citizenship, these
documents don’t really serve any purpose once the bill is paid. Just be
sure to shred anything that contains sensitive personal information
(account numbers, social security numbers, etc.)
While you are at it, take a quick look around at your other active files
and clean out any other outdated documents. Remember that 80% of what
you file away will never be looked at again until you toss it out. Do
you really need your kid’s class schedule from 3 years ago, or 15
outdated auto insurance policies? Ask yourself a couple of quick
questions about each piece of paper:
Is it current? Is it relevant to my life right now?
When was the last time I looked at it? Why would I need it again in the
future?
Can I easily get this information again f I need it?
What’s the worst thing that would happen if I got rid of it?
PROTECTING YOUR INTERESTS
While you are focusing on getting your affairs in order, spend a few
moments thinking about the future. Are you adequately protected in case
of a disaster or personal emergency? If you don’t have a household
inventory, create one. Take photos of everything you own, describe when
you bought it and what it is worth, and gather up any receipts and
appraisals. You will want to update this inventory each year to include
any new purchases -- and upgraded the replacement value of your
homeowner’s or P&C insurance to reflect any increases.
This is also the time to update your wills and powers of attorney to
take into account any changes in the tax and estate laws -- or a life
change like a move, marriage, divorce, birth of a child, etc. Also take
a minute to create or update a complete list of account numbers (bank,
credit card, investment, insurance policy, etc.) and important contacts
(attorney, investment broker, doctors, CPA, insurance agent, executor of
will, etc.) And finally, make sure that copies of your most important
documents (will, power of attorney, list of account numbers, list of
important contacts, insurance policies, birth certificates, household
inventory, etc.) are protected in a safe or safe deposit box.
Once you get in the habit of “cleaning house” each year, you will find
that tax time is less of a burden than it used to be. You will also
discover a greater sense of peace and control once your “house” is in
order – you won’t have to worry about “what if,” because you’ve already
planned ahead.
About the Author
Ramona Creel is a Professional Organizer and the founder of
OnlineOrganizing.com -- a web-based one-stop shop offering everything
that you need to get organized at home or at work. At
OnlineOrganizing.com, you may get a referral to an organizer near you,
shop for the latest organizing products, get tons of free tips, and even
learn how to become a professional organizer or build your existing
organizing business. And if you would like to read more articles about
organizing your life or building your business, get a free subscription
to the "Get Organized" and "Organized for a Living" newsletters. Please
visit
www.onlineorganizing.com
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