If you scrambled to meet the deadline this year, or weren’t happy with the outcome, the time to act is today. By setting up a system to organize tax-related documents throughout the year, the process will go much smoother. With better records you may very well find additional deductions. Here are four steps you can take today.
Know what tax-related documents you need to save
Based on last year’s return, make a simple spreadsheet of those items you need to keep track of, so you can easily spot the documents you are missing. Here are some of the more common documents you should place in a file marked 2016 TAXES.
- W2 Statements
- 1099-Interest statements for each bank account
- Retirement Income and Contributions
- Mortgage Interest Statements
- Property Tax Bills
- Education Payments
- Record of estimated tax payments made
- Job Hunting Expenses
- Form 5498-SA showing HSA contributions
Create a paper trail for charitable donations
Most of us make dozens of donations to charities that are often not counted, because you pay with cash and don’t have a receipt. This year, vow to use ONLY checks or credit cards to keep better track of donations. Designate a folder on your computer where you store receipts from online donations. Some charities now provide an opportunity to make automated contributions. It’s to your advantage to pay this way.
When items are donated to charity, the IRS requires the fair market value to determine the value of the deduction. Anything valued at more than $500 requires a written description on Form 8283. An appraisal is required for items valued at more than $5,000. Taking a photo of your donated items may prove useful if the IRS challenges your valuation. Write down the date, charity description and value of non-cash donations on a spreadsheet before you drop them off at your favorite charity. Goodwill publishes a convenient valuation guide to help you calculate the value of your non-cash donations.
Try an online tool to manage healthcare expenses
Healthcare expenses are deductible when they exceed 10% of your adjusted gross income. Because you never know when you might have a health care incident that quickly puts you over the top, you should always track these expenses. Review the complete list of IRS medical expenses that are deductible. An online tool such as Family Health Care Manager (FHCM) or Health Frame can help you track your claims, pay bills and manage an increasingly complicated healthcare system. With everything in one place, you will not only know if you reached the 10% level, but it can also help you better understand where your healthcare dollars are going.
Mileage apps make record keeping easy
Mileage trackers provide more accurate GPS data for tracking miles driven for charitable activities, medical visits and business- all of which is deductible. Apps such as Trip Log and Mileage IQ automatically track mileage from smart phones.
You’ll be ready for next year
When all your tax documents are in their proper place, everything will be ready for your tax professional when the time comes to file. Better records means more money for you and less for Uncle Sam. Those challenged by organizing should consider working with a professional organizer. Organizing Coach organizers will work with you to create a customized system that meets your needs.