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Why Organize For Taxes?

Posted on Friday, March 10, 2023
by AMAC, D.J. Wilson

If disorganization is causing you to delay or scramble to get your tax documents together before April 15, you are not alone. Know that you can turn things around for the future by creating a system to stay organized. Whether you’re electronically filing or using a tax professional, everyone can benefit from solid recordkeeping. Advantages of organization include safeguarding your important documents from being lost or forgotten, accessing records easily and at any time, filing your return more easily and faster, reducing the time and cost associated with professionally filed returns, and helping to avoid penalties from incomplete, incorrect, or late returns.

A licensed tax preparer or a Certified Public Accountant, CPA, are professionals who do taxes. In addition to being licensed, the latter has an advanced education. Not only can CPAs file returns, but they can handle complex tax situations and represent clients before the IRS. In addition, they may provide financial planning and/or consulting services. Either way, a tax professional will need to collect data required to complete and file a tax return on a client’s behalf. A tax professional is very busy, and they charge for their time. Thus, it’s to their client’s advantage not to hand them large piles of paper or shoeboxes full of receipts that are timely to sort through.

It is likely that the preparer will provide clients with a tax organizer containing a document check list. This helps clients understand what documents the preparer needs to accurately complete the return. There also may be customized questions to answer based off the prior year’s return. For example, a return client may be asked about number of dependents, 401(k)s, foreign investments, new business start-ups, etc. This provides clarity to accurately prepare the return. Documents may be securely shared with a tax profession via a secure portal that is provided. Or the papers may be hand delivered. Never send important documents or provide your social security number on an unsecure network or via email. Also do not drop documents in the mail where they risk being lost or stolen. Do keep backup copies securely stored, dating back three years or more per your CPA’s advice.

It is important that tax returns are properly prepared, and accuracy counts. The U.S. tax system relies on voluntary compliance, meaning taxpayers are responsible for declaring their income, calculating tax liability, and filing returns on time. Though both the preparer and taxpayer sign the return, and the preparer bears responsibilities to his client per contractual obligation and code of ethics, accuracy of the tax return lies squarely on the client, even in the case of mistake. Tax preparation issues can occur when people are missing important documents, when receipts are in disarray, or when they can’t find what they need to file a timely return, as examples. Thus, organization is key. And it is within everyone’s reach.

Tax documents should be handled carefully, filed by category, and secured in one place. Paperwork should be organized by tax year. Make use of subfolders if needed. For example, banking is a main category and monthly statements is a subcategory. You may store prior year tax returns or other documents by digitizing them and uploading them to a secure digital platform. It is advised that taxpayers keep up with the latest changes in maintaining documents online. U.S. News shares, “If you’re storing your documents on the cloud, through a system such as Google Drive or Dropbox, for example, make sure you’re doing your due diligence with security.” They recommend using a password manager and enabling two-factor authentication for added protection. Organizing receipts can be challenging for some folks. If you are uncertain of what to keep or discard, ask your tax professional. Then use online tools designed to help put them in order and to electronically store copies.

If you are filing your own tax return, you’ll want easy access to your documents. Be extremely cautious when entering information. Make sure your Social Security number and personal information are correct, and that you enter information accurately. Individuals should always review tax returns before sending them. Watch for incorrect filing status, mathematical mistakes, or errors in credits and deductions. Remember that an unsigned tax return is not valid, but this can be avoided by electronically and digitally signing it before sending it to the IRS. Those who file electronically should choose direct deposit to get their refunds faster. Know that some taxpayers may qualify for things like free tax return preparation from IRS-certified volunteers or direct deposit of refunds, so check those things out with the IRS.

Filing tax returns is not an easy task, but most problems can be avoided through proper organization. Rather than overwhelm your tax professional with a giant pile of messy papers at his or her busiest time of year, set up a routine system for organizing. To start, gather your tax return documents and receipts in one place. Decide what to keep or toss, retaining what is needed to file your return. Sort them into categories and subcategories. Choose how to securely store them. Then upload them and/or file them in a safe place, keeping backup copies as added protection. Use this system going forward. Not only will implementing this practice protect your documents while keeping them accessible, but it will also reduce stress and make preparing future tax returns easier.

This article is purely informational and is not intended as tax advice.

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