You’ve been smart all year long about how you organize your finances. Now that tax season is here, make sure you’re doing everything necessary to take advantage of your efforts during the past year. Here are our best tips for preparing for April 15th:
– Keep It Together
Prepare a file, and into it put all tax-related documents — W-2s, 1099s, and other forms — as they arrive in the mail. When you’ve collected all the forms you receive from employers, banks, and funds, sit down and scan them to your computer as PDFs (or take a photo of each on your smartphone) so that you can easily send them to your accountant. You’ll then be able to store them on your own computer or on a cloud storage service like Dropbox so that if you get audited any time in the next 7 years, you’ll have the necessary documentation close at hand.
– Know Your Interest
Gather 1099-INT statements, which detail the interest you’ve earned, for all your bank and brokerage accounts . If you’re a member of MaxMyInterest.com, you can use the new Consolidiated Tax Reporting feature to automatically gather all your 1099’s for you and put them into one password-protected PDF that you can print or forward to your accountant. Couldn’t be simpler.
– Watch Your Calendar
If you are required to file taxes for different states or municipalities, such as New York City, you may have to keep notes on which days you are physically present in each place. To document these moves, be sure to keep taxi receipts, airplane boarding passes, and other papers that can prove where you were on a specific date. Scan them in case your accountant needs them in an audit. For a more streamlined 21st century solution, try MileIQ, an innovative iPhone/Android app that leverages the GPS in your phone to automatically track your location and deductible mileage in an IRS-compliant manner.
– Track Your Deductions
If you’re entitled to take deductions for items such as mortgage interest or money you’ve contributed to a 529 college-savings account, be certain your accountant has the right documents to provide proof. Check your returns prior to filing to ensure these deductions have been properly incorporated into your returns.
– Make Charity Count
Keeping a spreadsheet of your charitable donations during the year helps at tax time. You can maintain a running tally to ensure you’re donating your target percentage of income. Your accountant will also need printouts or digital copies of receipts for your donations. Don’t forget to include anything you’ve donated in kind, from school auction items to charity thrift shops.
Tax time is also a good time to review your investment strategy. Were you careful about tax loss harvesting to match capital gains and losses? Are your dividends and interest producing regular cash flow that you might want to divert into other investments? If you’re not earning at least 1.00% on the cash portion of your portfolio, you might consider a service like MaxMyInterest.com to help generate incremental yield while keeping your cash FDIC-insured.