DIY Taxes Made Simple

“Death, taxes, and childbirth! There’s never any convenient time for any of them.”

-Margaret Mitchell

So this year, because of Covid-19, the Fed has pushed filing personal taxes back to July.

But I know you want to be prepared long before that deadline, right?

These tips will work for any year, pandemic or not, so why not stay ahead of the game this year and start a new tradition?

Last week we talked about using a professional to help with the filing—this week let’s look at how to D-I-Y and not go crazy.

Both routes involve a certain amount of paper (even if you’ve opted for an online accounting system).

So let’s start there.

Is your paper already sorted? Good for you!

If so, then you are in the minority and you can skip to Step 4.

The rest of you will need to tackle this job like most jobs—one step at a time.

Here are my suggestions for tackling your taxes:

STEP 1

Gather your paper and your digital files together. 

Most banks, investment houses and payroll companies offer online access so you can download your forms right to your computer or tablet and then organize them.

Once you’ve gathered everything together, you have two choices: keep two parallel file folders, one digital and one paper, labeled identically OR scan the paper docs and marry them together with your digital files.

Be smart about your naming lexicon—use complete and common sense words to name your documents so you’ll be able to find them later by searching when you need them.

Now you’re ready to sort and file them so you can start filling out the tax form itself.

STEP 2

Find last year’s tax return and use the categories on those tax forms to guide your sorting. You will need a basket or a container of some sort and an envelope OR a digital folder for each category of expense you have.

Here are two examples:

Businesses filing Schedule C will need a basket or other container for expenses such as advertising, car and truck expenses, travel, meals and entertainment, etc.

Individuals filing Form 1040 will need containers for items such as interest payments received, moving expenses, child care expenses, IRA contributions and/or distributions, etc.

Make a list of your categories and type that up, then save that document. 

That way, after you’ve prepared THIS year’s taxes, you can set up a system so as receipts, invoices and statements come in, you can sort them into their proper categories as you go instead of having to process all these documents in such a small window of time after the first of the next year.

STEP 3

Properly label each container or folder with its corresponding category name.

Then sort your documents by date AND by category, then paperclip each month together and add those clipped documents into their appropriate container.

Once you have sorted all your supporting materials into their proper categories, move onto Step 4.

STEP 4

Once all the sorting is finished, begin totaling up each category. I like to attach a post-it with the total on each categorized stack of documents in case you come across misplaced or misfiled documents and need to revise your total.

Once you have all your documents totaled up, you’re now ready to begin entering the information into the tax return.

As you complete each line on your tax return and all the data from that category is entered, put the paper documents into an envelope and carefully label or name that envelope.

If you’re doing this digitally, inside each folder you can create a subfolder labeled: ENTERED DOCUMENTS and as you total up each category, you can move the category of docs from the larger folder to the subfolder.

STEP 5

Gather up all the envelopes and put them in one place, bound together in a larger envelope or small box and label them with the tax year they represent.

When this is finished, you can congratulate yourself on a job well done.

SOMETHING TO CONSIDER FROM THE IRS

I found this on the web:

“The IRS recommends taxpayers keep their returns and any supporting documentation for three years after the date of filing; after that, the statute of limitations for an IRS audit expires.

If you’ve under-reported income by 25 percent, however, the IRS can go six years back, or seven if you claim a loss for bad debt or worthless securities.

If you don’t file, or if you file a fraudulent return, the IRS has no statute of limitations; so it may be best to keep your records indefinitely.”

I don’t think of myself as particularly conservative—but I am when it comes to the government and tussling with them.

I’ve advocated for clients with both fed and state government tax agencies and it’s always the luck of the draw when you call in to speak with an agent. 

Some agents are civil and humane and others are like bad cops—carrying some deep core wounds that inform every human interaction throughout the day. 

They can be the worst adult version of playground bullies, unyielding in their condescension and self-certainty and sadistic in their attempts to punish strangers.

If you encounter an agent described above, feel free to end the call politely but quickly. No need to create a paper trail of their anger and possible misrepresentation of your inquiry. 

Just tell them something has come up and you’ll need to try them later.

And just like most other customer service call centers, if you hang up and call back, you’ll (almost) never talk to the same person twice.

MAKE SURE YOU’RE COVERED

I keep tax returns themselves indefinitely. Period. Particularly now that they are digital, they take up no room and I always want to have a copy available.

I’ve scanned past years as well, before I was using software to prepare the returns.

Supporting materials can, as the quoted information from the IRS states above, be let go of over time. But hold onto your returns, just to be safe.

And if you’ve not filed OR fudged your numbers, remember … no statute of limitations.

I’m just saying 🙂   

TODAY’S ACTION

Even taking imperfect action will move you and this process forward. On the other hand, procrastinating will do nothing to move this forward.

So unless you really enjoy the adrenaline rush of staring down a deadline, take baby steps each week and you’ll easily finish this year’s taxes before the July deadline.

And then you’ll have a roadmap for future years that should further help reduce anxiety and frustration.

Once you’ve taken any action, let us know. Tweet your accomplishment: hashtag #iamorganized #taxbreak. 

Then take a little bit of time to decompress and relax—you’ve earned it.

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