Your Tax Paperwork

How do you sort your paperwork for your taxes? Do you have it all thrown in a bag or drawer somewhere in your home and then in January panic because you now have to sort through it all? Do you have it scattered all over so that when you go to get ready to do your taxes you have to go to several places in your house and dig for them? Or, do you have a system where you sort your tax paperwork as the year goes on and so when you get ready for tax time they’re all organized and in one place? If you’re like the majority of the people it’s all over your house in different drawers and bins. 

Since I’ve always been an organized person I have my own system that has become just part of my normal routine. That’s why my tax man last year told me he wished all his clients would have their paperwork organized like I do so he just has to plug in the numbers. Since I have my business, my categories may be different than yours but in general it should work for anyone.

During the first week of January I set myself up for success for the year by creating and labeling different plastic folders for each type of expense that I need to keep track of all year. You could also use regular colored file folders but I’ve found that the plastic ones with pockets keep mine from falling out every time I pull it out to add more to it. For me, these include:

Medical/Doctors and Prescriptions

Tax and Licenses – this includes what I paid my tax preparer last year and my car license renewal

Business Expenses:

•                   Postage & Shipping
•                   Cost of Goods Sold
•                   General Office Supplies
•                   Travel Expenses
•                   Mileage – more about this later
•                   Phone Expenses               
•                   Any new office equipment
•                   Rent
•                   Utilities
•                   Commissions and Fees
•                   Advertising
•                   Legal, professional and education fees
•                   Meals – if traveling
•                   Contract Labor

While this looks like a lot, you’ll find like I have that some may just have a couple of items for the entire year so I combine some of the categories so I don’t have too many to deal with.  I keep all these folders ( in alphabetical order since I’m a little OCD) in a plastic storage bin with a lid that I got at Target. Nothing special – just big enough to hold the letter size folders with a little extra space for miscellaneous other papers throughout the year.

Since I pay my bills twice a month, anything that comes in for payment between those days and any receipts I have that will be needed for taxes, get dropped in the front of that container. When I do pay my bills during the month I pull out this bin so it’s with me and the first thing I do is to pull out all the bills and receipts that I’ve dropped in the front and go through those.  As I pay anything that will be a business expense, I place the receipt or bill into the appropriate folder.  Since all my bills and receipts are in one place it’s easy to go through and pay and file them.

Okay – I said we’d discuss mileage so here’s what I’ve found works for me. I know that there are apps and programs out there that you can use but I’ve found it’s easier for me to just use paper. Every January I buy a new small steno pad type tablet that fits in the pocket in the passenger side door of my car. I clip a pen to it and keep a backup in the middle console.  Whenever I get in and am going to be driving for business I just put in the date and the starting mileage on one line of the tablet. When I finish those business trips, I enter the ending mileage when I pull into my garage and put the tablet back in the door pocket.  At the end of the year all I have to do is total that mileage from the tablet. Easy!

That’s it for expenses so let’s talk a little about any outside income you may have. For me that’s the income from my business.  I use an Excel spreadsheet for this. On one workbook I have tabs for each month of the year. As I receive payments for my business, I enter them into the appropriate month on the spreadsheet including the date and the person who paid me, along with the amount.  I have a formula in the spreadsheet that keeps a running balance for me so at the end of the year, it’s already totaled for me.

As I’m writing this for you I’ve realized that there is a lot more info about tax organization that I can share with you besides just my filing system so I’ll make this a two part post.  Stay tuned for Part 2 where I’ll give you more specific tax info to help you this year so tax time won’t be so stressful for you.