Bad Tax Idea: Bad recordkeeping.
How many times has it been tax time and you were putting your paperwork together and realized that you forgot something? Or even worse, that you lost your receipts that you had paid cash for. This will makes difficult at tax time when you are trying to piece together what you can take as a deduction or as an expense.
Good Tax Idea: Get an expanding folder or large plastic container with a lid and start to collect in envelopes your receipts. Label each envelope with its respective category – medical, business, expenses, children’s college, rental property, quarterly taxes paid etc. Once a month, take totals for everything you have for that month and keep a running total on an electronic spreadsheet or word processing document of your choice.
If you have a business you should know better and have accurate and detailed books. Running software isn’t going to help you if you don’t take the time to enter the data into the system and periodically take a pulse as to how the business is running.
Set up one date where you can take inventory and see if you have all the bank statements, credit card receipts, customer invoices, etc that you need to help determine accurately what state your finances are in and what your tax situation is.
If it looks like you are earning more money than you thought, congratulations. Make sure you are putting enough aside to cover quarterly taxes or have additional taxes withheld from your “day W-2” job.
If it looks like you might be paying too much, adjust the payments down but be careful that you don’t accidentally go the other way and end up not having enough withheld or paid for that quarter!
The other part of this is please make sure that at tax time you have SUMMARIES of the different categories that are using and don’t resort to having to dig into your folders (or, gasp, shoebox) to get receipts. Whether you do your own taxes on the web or with software or go to a professional, you want to save time and aggravation by having everything accessible.
You’ll thank me for this later…