financial reflections

It’s tax time, and that means it’s time to face the music.  I’ve gotten a jump on things this year and have everything but electronic filing done.  Here are some of the strategies I used to keep the pain of filing my taxes to a minimum:

As with everything on this site, keep in mind that I’m not an attorney, tax advisor or financial advisor.  But here’s some information that you can consider and talk over with whoever advises you.

I’ve gotten pretty good at filing, mostly because I overpay taxes and get a refund every year.  I’m actually trying to reduce my refund, but even if you think you will owe taxes it’s worth it to do everything short of sending your paperwork in early.  That way, you will know what you owe and have plenty of time to get together the cash to pay off Uncle Sam when you send in your paperwork on April 15th.

I use tax software for both Federal and State taxes and it’s worked out great.   In an effort to save a little money a few years back, I did Federal with software and tried to do State by hand.  I thought it would be easy because State was so easy with the software the year before.  I was wrong.  Hours later, I was buried in paper, just barely completing my returns.

Here’s what I do every year:

• If I don’t have one already, I get a big envelope (like a 9×12 inch Manila Envelope)
• Write the tax year on it, such as “2005 Taxes”.  Remember that April 15th, 2006 is the time you file for the 2005 tax year.
• I put my receipts, tax forms (like W-2s, 1099s, etc.) in the envelope.  It keeps everything neat.
• In February, when I think I have all my forms (I believe they must be mailed out on January 31st) in from everyone, I get tax software and install it.
• At that point, it’s pretty simple.  I follow the software’s instructions.  Keep in mind that my taxes are pretty simple.  I don’t have business income or taxable interest income (that means I’m broke) so I have W-2 income.
• I electronically file, which seems to get easier every year.
• I put the printouts of the return in the envelope with the forms and other paperwork and keep them on file in case I need them in the future.
• I put the CD the tax software came on in the envelope.  That way I have it if I need to create printouts at a later date.

That covers the current tax year.  But what one really needs to do is think about the next year:

• Get another envelope.
• Label it with the current tax year.
• Start putting receipts, forms, etc. into it.  I put:
• My car registration receipts.  In my state, the ad valorem tax is deductible.  You will have to check if that’s the case in your state.
• The receipt from my tax software.  According to my tax software, tax prep or software fees are deductible.
• Donation receipts.
• etc.

Then, at the start of the next year, I have it all ready to store the next batch of tax forms and paperwork.  It saves me a ton of time and makes keeping records easy.

Tax time doesn’t have to be too stressful.  Good luck!