Each year, shortly after the new year has arrived, people start bemoaning the fact that tax time is going to be here before you know it. Most admit that it wouldn't be such a dreaded task if they had kept track of things like receipts and other documents throughout the year. When you create a home for future reference items, you prevent that panicked feeling each spring as you try to remember the financial details of the year.
Really Simple OrganizationOur first piece of advice is to create a system to sort income, expenses and taxes.
Throughout the year you will come across paper documents supporting important information for your tax returns. Sort this information into three separate categories, using separate hanging files or binders. If you like uniformity, stick with one colour for your files and binders. If you are more visual, you may prefer a different colour for each category.
- Income: Here is where you’ll keep payroll stubs, T4s, Dividend Distribution statements, Gain and Loss statements, and Annual statements from your financial institutions.
- Expenses: Receipts of deductible items such as donations, loan interest statements,school/tuition expenses, business expenses such as mileage or uniforms. For real estate transactions you’ll need the closing statement and any home improvement statements in case those are deductible.
- Taxes: If you pay any kind of taxes throughout the year (i.e. quarterly estimated) keep these receipts in your taxes file or binder.
Valuable Advice on Tax Receipts
Four quick points to reduce that springtime ritual of hunting for tax receipts:
- If you purchase items that you’ll need proof of when tax time comes, you’ll want to be sure to hang on to the receipt. Sometimes it may not be convenient to file the receipt immediately.
- Keep an expandable wallet in your vehicle or your kitchen.These are two locations where receipts are often found “floating”. Once a month, transfer the receipts into your Expense File or Binder.
- If possible, make a note on each receipt what was purchased and circle or highlight the date. When you are in the middle of preparing your taxes, you will appreciate this attention to detail.
- Hopefully you will take this fundamental tax advice and put it to good use. You now have a place to put your tax information and it will be easy to access and use come the start of the new year. In fact, this tax advice may help you be so organized that you’ll do your taxes early next year.