Organize Messy Tax Records
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Despite your best intentions, you ended up with a box full of receipts, check registers, credit card statements and other scraps of paper. A mess. You don't need anyone to tell you what you that you should have been organizing your records all along. You need help in making the best of what you have.
Grab all of your receipts and go to the biggest flat surface you can find. Usually the kitchen table.
On blank pieces of 8 1/2" x 11"paper, write a broad category at the top of each one and place them around the table. Common ones are:
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Earned income (W-2s; jury duty income, hobbies, casual labor; rents, royalties, unemployment compensation, alimony, pensions, prizes, tips, etc.)
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Interest income from savings accounts, money markets and other funds.
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Capital gains from the sale of stock, real estate or other investments.
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Dividends received from mutual funds and corporate securities.
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Loan interest paid on your home mortgage or second home.
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Medical Expenses including insurance premiums and other medical and dental co-pays or deductibles.
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Childcare expenses including the name, address and tax identification number of the child-care provider.
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Charitable contributions including receipts for donations-in-kind and letters from the organization acknowledging contributions over $250.
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IRA and Keogh plan contributions.
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Real estate and personal property tax receipts.
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Education expenses such as tuition, books, lab fees and student loan interest.
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Non-reimbursed work expenses (travel, classes to improve your job skills, job-related moving expenses, etc.)
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Miscellaneous (union or professional dues, employment agency fees, tax preparation fees.)
Now take your records and one-by-one place them around the table in their respective categories. If you have cancelled checks, you may also place them in the proper place.
If your bank doesn't return checks, go through your check register and write the deductible amounts, check #, and date on the piece of paper that lists the category name.
Finally, add the amount in each category. Be sure to use an adding machine since math errors are one of the most common mistakes in doing taxes.
You've done the hard part! and it really didn't take all that long. Now you're ready to do your taxes whether you take them to your tax preparer, use one of the tax software programs, or do them manually yourself.
While the process is still fresh in your mind, get started on next year's taxes. For each category that you used get a large envelope or file folder and label it with the category name. As your receipts come in, place them in the respective envelope rather than the box. When tax time comes around next year, all you'll have to do is add up the receipts in each envelope.
What is
Deductible for Business?
For record keeping requirements, get Publication 538 'Accounting Periods and Methods' at the same link above. There are also many other publications there you may find useful.
Copyright © 2001-2022 Gary W. Lundgren, EA All rights reserved.