06 April 2011

Tax Time!

Call me crazy, but I don't hate doing taxes. Maybe it's because our financial situation isn't very complicated -- or maybe it's because, over the years, I have figured out a (super simple) organizational system that totally works for us. It's so easy that I want to share it.

You will need the following supplies to set up this system: a manila folder. That's all. (Our tax situation is pretty straightforward. If yours is complicated, you might need something more elaborate. Like two manila folders. Or perhaps a tax professional.)

We use this system both for collecting tax documentation throughout the year and for actually doing our taxes, so we usually set up a new folder around the beginning of the year -- whenever we get the first piece of tax-related paper for the year (usually a Goodwill receipt). For this year, then, sometime in January I got a new folder and wrote "2011 taxes" on the tab.

Then I opened the folder. On the left side, I listed all of the categories of documents we expect for the year, leaving space in each category for anything else that comes up. All of the writing goes in two columns on the left side of the folder, roughly organized into money coming in (jobs, etc.) on the far left and money going out (donations and anything that's going to be a deduction or a credit) on the right.

We thought it best not to advertise where we bank, work, who holds our mortgage, etc. out there on the interwebnet, so this is just a mock-up. For the real thing, we use actual names.

Throughout the year, every time we get a piece of paper that we're going to need for our taxes, we throw it in that folder. (We end up with maybe 15-20 pages. If you have more -- such as a bunch of medical receipts -- I would suggest the ultra-sophisticated paperclip method for keeping them together.) When the time comes to do our taxes, we use the checklist to ensure that we have everything we need before sitting down for an evening of TurboTax fun. That's it! After we've done our taxes, we file that folder away in a bin with previous years' tax folders so we can always find whatever we need for the next year's taxes, loan applications, etc.

Despite optimizing our withholding to come as close as possible to breaking even on our taxes, we tend to get a little bit back each year, so we file as soon as we have all of the documentation (usually in February). On the one or two occasions when we've owed, we wait until the last minute to click "submit." This year, because of huge tax credits for our geothermal heat pump, we're getting a bunch back, but we've been so busy with the marathon and then landscaping that we didn't get to submitting our return until this month. Bad us.

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