Organizing Your Paperwork Pays Off at Tax Time
By Mary Mulkerin Donius, Globe Correspondent, 4/15/2004
When you get right down to it, there are two types of people in this world — those who are organized, and those who are not. But both have to pay taxes. By today.
Organized taxpayers think about tax time all year long. They know what's needed to efficiently and thoroughly prepare a return, and they maintain the optimum filing system for keeping track of it all.
Disorganized taxpayers accidentally throw the 1099 form away with the supermarket flyer, or they let the kids turn the filing box that they meant to designate for major expenditures into a social studies diorama. They're the ones who start tearing their hair out in mid-March. Tonight, they'll crowd post offices at 11:55 p.m.
Obviously, it's too late to fix what went wrong this tax season. But specialists say that tax time doesn't have to be an annual nightmare for people who struggle to organize their paperwork. The key is familiarizing yourself with just what you need, and finding a way to keep track of it that suits your personal style.
Someone should have mentioned this to Tracy Evans of Brookline.
"I'm sitting on the floor with not one but two years' worth of taxes," said the 42-year-old owner of The Pride of Greater Boston, a direct-mail firm. "Just piles and piles of stuff." Evans is "mired in paperwork" these days, she said, since she plans to sell her business and move out of state.
"I began the year with the best intentions," said Evans, who admits to owning seven personal organizers. "I tried the shoebox, the big envelope, Quickbooks."
She was about halfway through the year, she said, before her filing efforts got the best of her.
"There were too many things going on, and I started putting things into these great big piles and left them to sort out later. Then everything just got all mixed up."
Standolyn Robertson, president of Things in Place in Wayland, tells clients that it's OK to have an imperfect filing system, as long as you know what type of organizer you are. Some people stack their papers in big piles and sift through them later. Others do their filing up front. Either method can work.
"Know yourself," she said. "Then keep your system simple, and always follow through."
There is a wide array of tools available for helping people organize their finances. Whether you choose a software program that helps you keep track of your money electronically, or you prefer a three-ring binder or an accordion folder, you can create and maintain a system that will work for you.
"Your goal is not to be perfect," she said. "Your goal is to have peace of mind next spring. It's about taking away the scramble."
She suggests developing a relationship with the person who prepares your taxes. Ask him or her which papers to save and which to discard. "Make this person a part of your team," she says.
Another team member can be your investment advisor, if you have one. If you have money invested, your advisor can work with you or your accountant, depending on who's preparing the return, to report capital gains and losses. You also might consider hiring an organizer or bookkeeper to help set up your filing system.
Your best friend during tax time is probably your accountant. No one knows better what you need for filing your best return, and no one (besides you) wants more for the process to run smoothly.
Tim Barry, senior tax manager for Needel, Welch & Stone in Rockland, recommends using last year's return as a launching pad. All the lines on the form that show deductions -- whether real estate, auto excise, or itemized -- are the basis for your checklist. That checklist should tell you exactly the way you need to save over the next 12 months.
"The biggest thing we find is that lots of clients don't have documentation," he said. "Too many people wait until March 15th and realize that they just haven't saved the paperwork."
Accountants usually provide clients with organizational guides to help with the tax-preparation process. But don't make the mistake of thinking that if you've hired an accountant, you're freed from organizing your tax materials. No accountant, Barry said, can prepare a return without the necessary information.
"It's always better to have too much information than not enough," he said.
But Robin Blank of Chaos Consulting in Boston says that it's a good idea to toss things out that won't be relevant at tax time -- provided you know what that includes. Saving a year's worth of phone bills detailing your personal calls, for example, takes up space and creates clutter.
Instead of having lots of small files, she recommends filing papers according to where you're going to need them next. "It doesn't matter where the papers came from, but where they're going," she said. So if you get a receipt for a charitable contribution that you're going to deduct at tax time, put it in your tax folder, not in a donations folder.
She suggests designating at least one box or bin for your 2004 taxes. "As the year goes along, you can slip everything you're going to need in there," she said.
Many people will take that idea a step further, and create separate files for home and business expenses. Depending on how organized you like to be, you might devise categories for such specifics as capital improvements, pay stubs, and mortgage payments.
No matter how you set up your system, she said, it's not necessary to clutter your home with paperwork. Primary work space, such as a desk in your home office, should be designated for regular tasks, such as monthly bill-paying. Documents that you're accumulating throughout the year should be handy, too. While you should have the previous two years of tax returns at hands, the backup paperwork that goes with them shouldn't take up "primary real estate," she said.
"You don't have to put those files in a prominent place," she said. "They should be available, but not necessarily immediate."
Stashing everything in a carton in the attic or garage is fine, so long as you'll be able to retrieve it. And clear labeling, she said, is key to making any system work.
Blank says there are little ways to minimize paper accumulation over the course of a year. For people who charge lots of deductible items on credit cards, for example, she recommends getting a card that provides a year-end summary statement. That way, you don't have to sift through 12 bills come tax time.
Tax preparation often seems overwhelming, but the rewards of paying the government only what you're required to pay make it worthwhile.
"You can train yourself to do these things," Robertson said. "There's hope for everyone."
This story ran on page H5 of the Boston Globe on 4/15/2004.