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It's almost tax time again...

Taxes...? Again? Well, maybe it won't be so bad this year...

It’s ALMOST tax time and for some that could mean a little extra money to do some home improvements, go on a vacation or just put in your IRA. OR for some it might mean seemingly endless hours of digging through boxes, sorting, organizing, searching the internet for answers and phone calls with your accountant. Let’s make it easy on ourselves this year and take advantage of the fact we have time to get prepared.

Preparation is Key

Even though the deadline to file a tax return isn’t until April, if you don’t start getting organized, it might sneak up on you. Don’t get stuck rifiling through a mess of papers spread out over your kitchen table the night before. Start organizing your tax documents now and save yourself from future headache.

Why is Now Such a Good Time to Get Organized?

Even though the April deadline to file your return seems like it’s far away, the time to start getting your documents together is now. If you wait until April, receipts for items you plan to itemize are more likely to get shuffled in with other papers or accidentally thrown out with less important papers. It’s not just about the physical documents either, with the year fresh in mind, you’ll have a much easier time remembering all your relevant financial actions and where to get the documentation.

Setting up an Organizational System

A good organizational system is indispensable for those who fill out and file their own returns, and it’s just as important for those who don’t. If you employ the services of a tax professional, you may feel that it’s appropriate to simply hand over all the relevant financial data in a big pile. After all, as a tax professional, sorting through this stuff should be a breeze, right? Think again. Because unless you have an accountant on retainer, no one is more familiar with your financial actions than you are. No matter how financially literate an expert is, sorting through unfamiliar documents takes lots of time. You can be sure that their time is going to be expensive. Well-organized documents could save you some significant dough.

If you’ve never kept your tax documents organized before, here’s a four-folder system to get you started:

Tax Documents — This folder is for your tax forms and any other IRS documents

Income — The paper trail for your income, like salary and earnings, go here.

Expenses and Deductions — Support for any deductions you’ll be taking go here. If you’re itemizing your deductions, you may choose to separate this folder into categories.

Investments and Business — Investment sale confirmations, purchase receipts, year-end overviews and dividend reports belong in this folder.

Feel free to make changes to this system as you need to. For example, you may find that you’d like to add a folder if there are enough related documents from a certain activity, or that you just need the first three folders.

Don’t forget to order documents in the folders by date (if possible). Whatever you do, don’t get rid of your files. Getting this all organized is a lot of work, and you wouldn’t want to just toss that, right? It’ll be very nice to have just in case you get audited someday (knock on wood) or simply have some questions of your own.

Keep an Eye out

You’ll get statements from brokers, employers, banks and other institutions in January. Be sure you know whether or not you’re signed up for e-documents. If you are, make sure that the institution has your most up-to-date email address.

A Head Start on Next Year

Once you have your system of folders and files in place for 2016, take a few extra minutes and start folders for 2017. This way, as soon as the new year starts, you can keep your documents organized. When the 2018 tax season starts looming, you won’t have to sweat it at all!

Tax questions? Finding your own answers

Sometimes you find yourself with a tax question that’s very specific to your situation. Even your usual advisor isn’t quite sure how to answer it. They might tell you it will take some time to research. That time is going to be expensive for some information that may or may not save you money. Before you pony up for an advisor, here are some tips on finding tax answers for yourself!

Since almost everyone is required to pay taxes, it would only seem fair that the IRS should make the rules about how much you might owe freely available. Guess what? They do! There is a staggering amount of clear documentation concerning the tax implications of any financial situation you may find yourself in. If you have an afternoon to spare, it’s surprisingly easy to discover what you’re looking for.

Finding The Right Terms

The first step in answering a tax question is to know what you’re looking for. The IRS has great documentation, but you need the right key terms to find your way. Try searching for your problem along with the terms “IRS”, “Explain”, etc. You’ll often find short, friendly articles like this one that will help you identify the key terms you’ll need to use to find the right form or publication for your issue.

Dig in to Documentation

Once you’ve identified the key terms concerning you issue, search for them along with “IRS”. Chances are, the first few results will each be one of the following from IRS.gov:

Topic pages — These are a good place to start. If you’re lucky, you might find your answer here, but usually they’re just the beginning of the rabbit hole, with collections of links to the following documents.

Forms — These guide you through the calculations of what you owe. Even when the required calculations are complex, you can trust the forms to gently guide you through with simple line-by-line arithmetic. You don’t need to know them all, but, for individual taxes, it’s a good idea to get familiar with form 1040 since all the other forms generally lead back to it.

Form instructions — Sometimes you’ll find instructions at the end of a form, other times they are provided separately. For any lines on a form that are unclear or ambiguous, the instructions usually will clear up the confusion. They’re always in order by line number, so you don’t need to read them all, just check them as needed if you get stuck on a particular line.

Publications — These are pamphlets (available online in PDF form) that go into great detail to explain the current state of tax laws on almost any given subject. Don’t be daunted by the fact that they’re often 50 or more pages long; just check the table of contents for what you need. You’ll probably only have to read a few paragraphs to find your answer.

As you dig around, keep a pen and paper handy to take notes. It’s also a good idea to pull out a copy of the return you filed last year. If your question can be answered by the results of just one or two lines on a form, you can use your old return to make estimates instead of working through all the calculations from the beginning.

Admittedly, there can be a lot of details to keep track of. However, with some patience and a cup of coffee, not only will you save money — you’ll earn a sense of accomplishment by answering your own question! — These are a good place to start. If you’re lucky, you might find your answer here, but usually they’re just the beginning of the rabbit hole, with collections of links to the following documents.

Forms — These guide you through the calculations of what you owe. Even when the required calculations are complex, you can trust the forms to gently guide you through with simple line-by-line arithmetic. You don’t need to know them all, but, for individual taxes, it’s a good idea to get familiar with form 1040 since all the other forms generally lead back to it.

Form instructions — Sometimes you’ll find instructions at the end of a form, other times they are provided separately. For any lines on a form that are unclear or ambiguous, the instructions usually will clear up the confusion. They’re always in order by line number, so you don’t need to read them all, just check them as needed if you get stuck on a particular line.

Publications — These are pamphlets (available online in PDF form) that go into great detail to explain the current state of tax laws on almost any given subject. Don’t be daunted by the fact that they’re often 50 or more pages long; just check the table of contents for what you need. You’ll probably only have to read a few paragraphs to find your answer.

As you dig around, keep a pen and paper handy to take notes. It’s also a good idea to pull out a copy of the return you filed last year. If your question can be answered by the results of just one or two lines on a form, you can use your old return to make estimates instead of working through all the calculations from the beginning.

Admittedly, there can be a lot of details to keep track of. However, with some patience and a cup of coffee, not only will you save money — you’ll earn a sense of accomplishment by answering your own question!