How To Organize Your Finances For An Easier Tax Season

Are you a last-minute taxpayer during tax season, or are you vigilant, preferring to prepare early for the inevitable day of payment? Tax season is arguably one of the most hectic times of the year, and for accountants and taxpayers, the stress is almost toxic. If you've found yourself under pressure every tax season, it's time you consider adopting a better approach to preparing for tax season.

Tax season organization tips

Here are some valuable tips on how to organize your finances so that you can have an easier tax season.

Create a filing system

When it comes to preparing for tax season, preparation is everything. Receipts are vital for the filling process and while saving them in boxes in your basement is passable, it's never enough. Organize your receipts in various categories that will accurately indicate your spending patterns.

Having a binder or folder is a great way to stay organized and avoid facing a mountain of paper when tax season arrives. Keep a file for spending related to your side hustle, home, office expenses, medical costs, education, childcare and even charitable donations. Itemizing your receipt collection makes it easy to identify deductibles and account for all spending, potentially earning you even bigger savings.

Go digital

If you are conscious about tax documents filling up your space, consider going digital to save space and time. Digital copies of receipts are beneficial when filing your taxes since you can access them remotely without hassle.

To digitize your receipts and other tax documents, consider taking pictures or scanning them. While electronic scanning can be expensive, these costs are justified since physical receipts are always at risk of getting damaged or lost. When dealing with a bank or other vendors, request electronic account statements and documents. With digital technology, you can store documents on hard drives or the cloud, where they will be accessible for many years.

Gather all relevant documents early

Tax season doesn't mean that you can put your other responsibilities on hold. You still need to go to work, take care of your family and relax. To avoid the back and forth interruptions that occur when preparing your taxes, check whether you have all the required paperwork. Do you have your W2s, 1099s, or 1098 on hand? Make sure everything is on deck before you start doing anything.

Plan and update everything

Being organized with a filing system is great, but you will rush during tax season if you don't update your files periodically. Every one or two weeks, add new entries to your files. If you get a receipt from your vendor, add it to the file and if you get a bank statement, stick it in the designated folder. Setting a reminder can help you remember when to revisit the tax cabinet or folder.

Constant updates might seem tedious, but by scheduling your entries early, you will eliminate the risks of last-minute panics or missing documents. An advantage of this strategy is that you will be doing it instinctively after a few weeks, which will make your life easier in the long run.

Use online tools

There has been an increasing application of digital technologies that make it easier to be tax compliant. If you don't want to hire an accountant or simply need to control some aspects of tax preparation, select a software program that works for you and your budget.

Some common online tax tools include Mint.com, Turbo Tax, Tax Act, and FreeTaxUSA, which support free and paid capabilities. But like with all tools, ensure that the program is authentic and encrypted to protect your private information.

Key takeaways

Last-minute tax stress might seem unavoidable, but if you organize your finances accurately, you can avoid unnecessary tension. The careful organization of tax-related items places you at an advantage while preparing your taxes.

While these tips show you the best practices to ease tax woes, they are not foolproof. If one approach doesn't match your needs, you can develop a style that works for you. Happy tax season!