Feb 1, 2008

Preparing for tax season

As I've mentioned previously, we hired an accountant to do our taxes for the first time last year. I wasn't sure what to expect, but I wasn't exactly surprised to receive a thick workbook that required me to fill in almost all of the information that would go on our 1040. Part of me thought, "Why I am paying someone to fill out my 1040 when I'm doing so much of the work myself?!" But another part of me was happy to have the peace of mind that came from knowing a professional was going to see everything, and I reminded myself (as FMF has pointed out) that making my accountant's job easier reduces the amount I have to pay him.

I learned last year that filling out the worksheet was a little different from doing my own taxes, since I had to send in supporting documents, even if they weren't documents that needed to be sent to the IRS. In the past, I simply accumulated tax-related documents in a manila folder in my filing cabinet, then sorted through them as I prepared my 1040. This worked fine since I didn't need to send in many supporting documents and I just kept a pile of papers to one side as I worked. But for some reason, this no longer worked for me last year, when I had to make copies of some documents but not others. I resolved to find a better system for tracking my 2007 documents to make my life easier when the worksheet arrived in 2008.

I'm expecting that worksheet any day now, so we'll see if my new system works better. I'll report back after I've finished the worksheet, but in the meantime, I want to share what I did:

I re-purposed a multi-compartment file folder like this one.Then I labeled the pockets as follows:
  • Income - This includes pay stubs, 1099s, and other forms related to income.
  • Medical - I don't expect to be able to deduct medical expenses (it's such a high threshold) but I keep documents related to my medical flexible spending account here.
  • Childcare - I keep all documentation relating to childcare here, including documents related to my dependent care flexible spending account.
  • Charity - All receipts for charitable donations go here.
  • Other deductions - Documentation relating our mortgage, property taxes, etc., go here.
These categories roughly correspond to how the worksheet is organized, so my plan is to fill out the information for one category, make copies of the necessary documents, and then move on to the next section. This should enable me to complete the worksheet faster than I did last year, and in a way that's more conducive to interruptions since I have so few blocks of time. I recall that last year, I would get frustrated at having to set the worksheet aside because I would have to re-orient myself to the jumbled documents when I came back to it.

I've been tempted to acquire another file folder to organize this year's documents that have already started coming in, but for the time being, I'm holding off. I'm hopeful that I'll be able to complete the worksheet before the end of February, at which time I can transfer the documents to a manila folder in my filing cabinet and move the 2008 documents into the compartmented folder.

Question for readers: How do you organize your tax-related documents?


Guitar Widow said...

I just put everything into one folder, but I paper clip like items:

Mortgage and Property Taxes
Student Loan 1098 - from undergrad
1098-T Grad School Tuition
Stock Sale 1099-B (if applicable)
(I also give the cost basis because I follow the stocks in Quicken)
Healthcare Expenses (which we also do not typically get)
Charity Donations

Like you said, the easier you make it for them the less time it will take them and the money $ you save!

I love my accountant, I will never go back to doing our own taxes - ever.

SavingDiva said...

I have a folder for all of my stuff from 2006. This year, I just created a little stack near my computer. Yesterday, I received my last W2 and 1099-DIV, so I started filing. I use TurboTax basic because I just take the standard deductions (no kids, no house, no medical emergencies, only small donations to charities)....it costs about $20

RookieMom Whitney said...

I think your categories are good, and I'm wishing I did this throughout the year. I just have one pile of stuff I will go through once I start TurboTax. I used to have someone else do the taxes, and then I decided that we were two people with only two jobs and one house, so it should be simple. Now we are four people, one house, one normal job and one potpourri of jobs (including royalties) so I might be regretting it later... but I love how everything is imported from last year and I don't have to pay someone.

Chief Family Officer said...

@Guitar Widow - I think I'll adopt the paper clip method until my compartmented folder is available. Thanks! :D

@Saving Diva - I love the idea of starting the filing. That makes so much sense!

@Whitney - You sound like me back when I did our taxes myself - "how hard can it be?" But then we had kids, things started to get a little more complicated ... and I didn't want to risk anything falling through the cracks. I don't think you'll regret the peace of mind if you get an accountant!