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Man and woman looking frustrated doing their taxes

Tax season. A phrase that can make almost anyone roll their eyes and wonder how long they can procrastinate getting their returns together. But it doesn’t have to be a struggle; follow these actionable tips to set yourself up for success come tax time.

Note: Not intended as tax advice, consult with a licensed tax expert for any tax-related questions.

Tax Time is Stressful

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Essentially, tax season begins at the start of a new year. As Americans barely finish popping the champagne and ringing in the New Year, many feel pressure to carve out a substantial amount of time and pour over the prior year’s financial information, sorting, calculating, and preparing to file your income tax return.  

Maybe you manage your stress well, but if you don’t, tax time has this tendency to suck the hope and joy out of Q1 and replace it with dread.  Mostly because the task feels so daunting and the last thing you want to spend your time on is preparing your taxes.

An Accounting Nightmare

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If you’re a small business owner, you may face an accounting nightmare if you haven’t kept good records throughout the year. The good news is that this can be the last year you feel this way. 

Following these simple, practical tax tips will help you set up some basic systems you can easily maintain throughout the year, allowing you to quickly gather all necessary info come tax time.

Sticking to this system year-round will allow you to prep your documents and have everything ready to prepare for your return in under an hour.

Practical Tax Tips

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These tips are “practical,” not expert, meaning these tax tips are more relevant to practice, not theory.  They just make sense for the average person to put into practice and aren’t required steps for filing your tax return.

They do not require accounting experience or a finance degree–just some diligence and consistency.

Create Systems To Keep You Organized

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Many people have ditched the paperwork and opted for electronic billing and statements. This has been a great move for the forests; however, email can be a pain point for many.  If the notification numbers and little red circles drive you crazy, there is a very simple way to organize your email account in preparation for tax season. 

This might sound fancy, but it’s nothing more than setting up a few additional email folders.  Focus on creating folders for the following categories, if applicable:

  • Personal expenses: Create as many folders as needed to keep you organized. This may include bills, charitable donations, misc purchases, investments, etc.
  • Business expenses: If you’re a business owner, contractor, freelancer, etc., you’ll want to keep records of all your expenses relating to your business, trips, mileage driven, etc.

Manage the Clutter

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Take a few minutes to create all your new folders. throughout the day, when you receive an email or receipt for an expense, take a second and drag it into the appropriate folder for safekeeping. This only takes a second, so it’s easy to keep up with even if you receive a high volume of emails.

When you close out your month or whenever you sit down to update your spreadsheets (we will talk about these in the next tip), you will have all the transactions you need in one place.

Save the Ink

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It’s up to you whether or not you find it necessary to print each email and receipt. You can opt to keep hard copies or use a cloud-based system to store your important documents, like Google Drive or Apple’s iCloud. This way you can save your ink and also access your information from multiple devices. 

Still, while printing everything out feels a bit antiquated today, having a paper backup makes some people feel more in control of their finances, so you’re one of those people then, by all means, print your heart out.

Create a Yearly Tax Spreadsheet

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This spreadsheet will be the cornerstone of your tax system.  If you’re not a fan of using spreadsheets, you can skip this step and set up a financial management system like Quickbooks or Wave to track your day-to-day expenses.

Choose your program: What’s your preference?  Microsoft Excel? Google’s Sheets?  Apple’s Numbers? It makes no difference.  Wherever your comfort level lies will be just fine. Set up your spreadsheet: Title it for the current year – you’ll likely want a new spreadsheet for each year – and create the following tabs (across the bottom): expenses, business expenses, income, and mileage.

(If you don’t own a business, you’ll simply omit the business expenses in this system.)

Maintaining Your Spreadsheet

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You will need to decide what will work best for your schedule. You may want to add a block of time into your calendar at the beginning of each month to close out the prior month.  

Use that time block to enter all your expenses, income, and mileage (if applicable) for the prior month into your spreadsheet. It may be easier to add each transaction as it occurs, especially if you are not a business owner, or choose to batch this task each week or month. Batching will likely save you time by doing it all at once instead of hopping into your spreadsheet multiple time each week.

Whatever schedule you decide on, consistency is key.  A little time each week or month keeps you from having to spend a lot of time at the end of each year.

Track Your Expenses

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This is applicable to those with their own business. However, if you have personal expenses you plan to deduct upon filing (like charitable expenses, energy efficiency upgrades, etc.), then this step applies to you too.  

Be sure to track your expenses, but don’t overcomplicate this. Simply determine the easiest way for you to consistently keep track of your expenses. Include the date, amount, where the money was spent, and what you spent it on.

Stash Your Receipts

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It’s also good practice to make a note on paper receipts so you can identify them easily and save all paper receipts (and the emails in their appropriate folder) in a small accordion file.  When closing out the month, enter all receipts in the spreadsheet, and you’re finished until the next month.

Of course, if this system doesn’t sound simple to you, simply adjust as needed. If a process does not feel effortless and easy to maintain, it’s unlikely you’ll stick with it.

Track Your Mileage

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Most people know they should be tracking and deducting business miles driven, yet surprisingly many people don’t bother doing so…probably because it’s a pain!  I want to give you a few ideas to make this task more automatic.  

Tracking your mileage can feel tedious, and many will either estimate or skip claiming the deduction altogether…that’s money you’re literally leaving in the government’s pocket!

Furthermore, most people who estimate their mileage are way underestimating. Tracking your mileage does not have to be difficult or take a long time.

Mileage Tracking Tips

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Try some of these tips:

  • Grab a mileage log and keep it in your car. Get in the habit of filling it out before you pull out of your garage and finish the entry before you exit the car after you’ve returned home. This will ensure you never miss a trip or log entry.
  • Try a mileage tracking app like TripLog or Mile IQ. They are handy and can even give you a notification prompt where the app has already calculated your mileage, and you just need to categorize it as business or personal. 
  • Manually enter your info easily in a notebook or notes app. Be sure to include the date, beginning mileage, ending mileage, and purpose.

Log Your Totals

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Periodically throughout the year, enter this information on a spreadsheet for safekeeping (and easy access at year-end). Some apps will even allow you to run reports you can print.

Most small business owners are aware that they can write off miles driven for their business purposes but don’t forget also:

  • If you are allowed to expense certain miles driven for your job
  • Miles driven for charity purposes can also be deducted

Be sure to check with your accountant or the IRS website for the current standard mileage rates, as they fluctuate yearly.

Track Your Income

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This likely won’t apply to you if you are a straight W-2 employee, meaning each January, your employer mails you a W-2 that you use to file your taxes. But if you are self-employed in any way, it’s a good idea to track your income.

Contractors, freelancers, and other business owners may have some months where they “earn” money, but it’s not actually paid until months in advance. Sometimes you may be paid via PayPal, check, bank transfer, etc., so it’s a good habit to track your income. In addition, if you’re earning income that is not already reported, it’s your responsibility to do so, and having a record of everything you’re bringing in makes that much easier.

Know What To Claim

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A simple spreadsheet with a few columns, including date, company, and amount, does the trick. Add an extra column to mark the date you received the payment. This helps to know what income to claim and makes it easy to see if you’re missing any payments so you can follow up.

This can be updated each time you receive a payment, or you can simply add it to your month-end tasks.

Set Up Separate Accounts

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If you are self-employed, it’s important to separate your business and personal finances. You can set up separate bank accounts at your local bank, and be sure to look for an account free of maintenance fees and balance requirements.

Not only does this ensure your business and personal finances aren’t co-mingling, but your account statements will reflect business transactions only, making it easy to check over to ensure nothing was overlooked.

Depending on the nature of your business, it might be a good idea to also set up a separate business PayPal account for the same reasons. This simple task will save you a substantial amount of time in the end.

Adjust Your Tax Withholding

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This can be a touchy topic to many, but ultimately, you have to decide the best course of action for you. When you complete a W-4, you instruct your employer on how much tax to withhold from your paycheck. When you file your taxes at the end of the year, the IRS will look at the taxes you’ve already paid, apply your deductions, and determine if you’ve overpaid or underpaid your taxes. If you’ve overpaid, they will issue you a refund; if you’ve underpaid, you must pay the IRS instead.

Basically, if you’re owed a refund, that means you’ve given the IRS more money over the course of the year than you needed to and essentially have given them a zero percent loan all year long…aren’t you sweet?! Unfortunately, the IRS is not as generous.

A Tax Refund is Not a Bonus

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While the thought of possibly paying the government can be scary, it makes more sense to have that extra money in your pay all year. A tax refund is not a bonus.

Many people keep their withholdings high to avoid the possibility of having to make a payment at tax time, but in many cases, this practice almost guarantees you’ll receive a refund each year.

Speak with your accountant or HR representative to get advice about adjusting your withholdings in an effort to break even at tax time. This will allow you to receive that additional amount in your paycheck so you can put it to work for you year-round. You can invest it in our high-yield savings account or index funds and earn interest instead of the IRS having your money all year and not paying you interest.

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