Taxes—On the Right Track
By: Connie Holt, E.A., ATA, ATP
The Henssler Financial Group Position Paper
How many of you have vowed to be more organized in tracking your tax information? Do you dread tax season with a passion and tend to be a procrastinator in gathering your tax documentation? How would you feel if I told you by changing how you track your tax information, you could save money? Are you ready to change now? Well, let me assist you…throw the shoe box away!
By being organized and thorough, you have the opportunity to possibly reduce your tax preparation fees, but more importantly, you could save money on the amount of taxes you pay. Thoroughness and organization increases your chances of taking all the tax deductions that you are allowed. You will not miss a deduction because you could not locate your receipt or forgot to inform your tax professional about an expense. Being organized takes time, but the benefits are paid directly to you. Let's go one step further and look at how to keep that organization simple.
Tracking Methods
Choose a manual or computerized method of tracking your tax information.
Manual Options
Notebooks or three-ring binders work well for the manual method. You can organize using section dividers that have pockets. Place your receipts or documents in the pockets of the dividers and insert your written information sheets using a three-hole punch. If necessary, you can use a separate notebook for categories, such as, itemized deductions or any categories for which you have a large amount of documentation.
File folders can be used, but I suggest using one file drawer for tax documentation only. The hanging files can be labeled for the categories, such as "income," with the file folders labeled for the specifics, such as "interest income." Your receipts and written information are filed in the file folders. Expandable hanging folders and file folders are ideal, as not only do these files expand in size as the contents grow, but since the sides are closed, the receipts will not fall out.
Computerized Options
When you use a computer to track your information, your options increase. You can enter your transactions into spreadsheet software, or software specifically designed for your personal records such as Quicken or Microsoft Money. Explore your options with your bank for online banking with possible downloads of data into Quicken or Microsoft Money. Banking online will often allow you to categorize payments and produce reports that can be printed by category. These options are based on detailing each disbursement and deposit into your bank account.
Tax Tracking
Whether you are more comfortable with the pen and paper method or a computer, you can use the tracking category list below to design your records. No matter which method you choose, the most essential aspect is that all items are tracked.
Tracking Category List
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Income
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Deductions
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Retirement
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Self-Employment Business
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Rental Property
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Assets
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Partnerships, Estates, Trusts and Corporations
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Farming
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Household Employee
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Home Office
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Tax Payments
Each category should be divided into subcategories that apply specifically to your tax situation. Base your subcategories on your previous tax return and any items that might be new for you, such as, childcare after the birth of your child. For example, the subcategories for your records could be:
Income
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W-2 Earnings
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Interest Income
- Dividend Income
Deductions
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Personal Property Tax
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Real Estate Tax Bill
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Cash Charitable Contributions
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Non-Cash Charitable Contributions
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Safe Deposit Box Rental Fee
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Tax Preparation Fee
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Investment Advisory Fees
Whether you are drawing columns on paper or assigning category names in computer software to record transactions, use a basic category list to separate your transactions. A more complete list is available by clicking on Tax Tracking List. File your receipts as you receive them throughout the year in the appropriate categories.
Using organization and thoroughness in your tax records will enable you to be on the right track with your taxes. Do not miss those deductions you are entitled to take because your records are not on track! The tax savings you should receive is a basic step in cash management. For more information regarding this topic or any other tax-related issue, please call The Henssler Financial Group Tax & Accounting Division at 770-428-4025.