TAXES! The bane of our existence. We all do our best to ONLY pay our fair share – and I believe that to be the right way to do that. Taxes are necessary in our lives; they provide for the public good, but preparing to do our taxes seems like such a chore.
I’ve been doing tax work for clients since 1985. I have had some who were always organized and others who seemed to spend months preparing. I think they were just in procrastination mode because they didn’t have a suitable method or didn’t want to know the end result.
The method you use to keep track during the year can really simplify how you feel about the preparation for the next year. Even if you put off filing until the last minute, it shouldn’t create stress leading up to the event. Any method works, as long as you are consistent.
Here are some ideas.
If you are NOT self-employed in any manner, read this:
Set up a file to receive all statements related to taxes and drop the forms in there. I create both an online folder and a physical one since many of my statements come by email now. If you buy or sell a home, drop the closing docs in the same folder. It’s amazing how we forget what we did early in the year when we start the process.
Back when we all used checks to pay for things, it was easy to put a little T in our register to remind us of tax-related purchases. That’s harder now with so few checks written, but can still be done. The difference is that instead of having a written register, we can use an online register. No software is needed, but make sure your bank allows you to download a file of transactions. To make this work for you – (1) download a csv file of all of your transactions (2) open in an excel format – you can do this in Excel for the Web or Google Sheets if you don’t keep Excel on your computer (3) delete the columns you don’t need (4) create a column to make notes in (5) sort your worksheet by your new column.
This is how it might look in real life:
5/20/20 $1914.62 Pondera County Treasurer Rental-Montana house
6/12/20 $142.61 Idaho Power Rental-Bingham house
6/25/20 $100.00 American Cancer Society Charitable Contribution
7/16/20 $50.00 Girl Scouts Charitable Contribution
The last column is my notes; then, I just total each category. Could I make it more complicated than that? Absolutely! But why, I really just need to make sure I’ve got it all. I will also have hundreds of entries with no notations on them – that’s just living.
If I then take that worksheet, apply my receipts to it to make sure I haven’t missed anything, I’ve got the info I need to move forward.
If you are self-employed, you’ve got lots more work to do.
First, I recommend you use a piece of software to keep your bank account reconciled and all of your info in one place. I use Quickbooks Online, but there is other software available. Use what you are comfortable with, or spend time getting comfortable.
Essentially I do the same as in the first method; I link my bank accounts to QB, then I review all of the entries and put them in the proper categories. QB lets you create rules for recurring expenses. If Idaho Power is always utilities for a Rental house, I can assign that rule to that bill. Less decision-making for me. Once everything is assigned, I create a Profit and Loss statement and look closely at the categories; if something seems distorted, I can easily click on that line item and review what went into that – if something is mistakenly there, I can click through and change the assigned expense or income.
Because I have multiple businesses, this happens more often than it should, but I keep it all in one set of books so I can move things around.
My best advice is don’t make your tax prep/bookkeeping so complicated that you won’t use it.
Simple is better.
Do your tax preparer a favor and keep it simple for them too.