How long does it take you to file your taxes? Specifically, how long does it take you from beginning to end to complete the entire process—record keeping, tax planning, form completion and submission, etc.? According to the IRS’ 2024 Form 1040 Instructions, the estimated average time burden for all taxpayers is thirteen hours. This includes the work involved with all associated forms and schedules across all tax return preparation methods and taxpayer activities. Let me be more specific. The IRS estimates that nonbusiness taxpayers spend an average of approximately eight hours while business taxpayers spend approximately 24 hours.
I’m all about process improvement. No matter how long it takes you from beginning to end, I highly recommend you examine your process and implement improvements to reduce your time burden. And if you haven’t done that yet, the best time to do it is once you’ve filed your most recent taxes. Why? Because the process (and yes, frustration) is still top of mind. If this is any incentive for you, please know that it used to take me days on end to gather my tax information. Now it just takes me a few hours after I invested time in creating an efficient process and followed it throughout the year.
This month, I’m offering five tips that have helped me organize my tax documents. I hope they help you as well.
Tip 1. Create a Home for Tax-Related Paperwork:
Your paper tax documents must have a dedicated home so you know where to put them so they’re at your fingertips. Whether it’s designated folders in a filing cabinet, a dedicated portable expanding file organizer, or a three-ring binder, etc., create sections/labels for major categories of tax-related documents. If you don’t, they’re apt to end up in a 3-foot pile of papers in your home, or maybe even as lining in your cat litter box.
Tip 2. Categorize/Organize Your Documents:
I’ve helped a lot of clients organize their paperwork and digital documents over the years. I’ve found that most organize them alphabetically. While that may work for some, I’ve changed the way I file tax-related paperwork. I now have set folders for the major categories and subcategories listed below in my filing system. Why? This allows me to easily file and retrieve documents. Some categories include:
- Income: W-2’s, 1099s, etc.
- Deductions: Charitable donations, medical expenses, etc.
- Investments: capital gains/losses, retirement contributions, etc.
- Business Expenses: Business-related purchases, home office expenses, etc.
Tip 3. Track Expenses Throughout the Year:
I’ve learned over the years that it’s easier to track expenses as I incur them versus trying to log a year’s worth all at once for tax prep. Use what works best for you whether that’s a spreadsheet or financial software. I use a spreadsheet for personal deductions and a free subscription to Wave financial software (which I LOVE) for my business deductions.
Tip 4. Create Rules:
I make many business purchases quite often. As a result, I created a rule that whenever I incur one, I have to log it IMMEDIATELY while it’s fresh in my mind. Once logged, another critical part of the process is adding a huge visual identifier on the printed receipt so I know at a quick glance that I’ve already entered it. For me, it’s stamping it with my “Entered” stamp. For you, it may be as simple as a checkmark on the receipt. Choose whatever system works best for you!
Tip 5. Create/Maintain a Checklist:
Before sending my tax info off to our CPA for filing, I refer to my handy dandy checklist of data sources to ensure that I haven’t forgotten anything—particularly digital receipts. While it may be easier to print these out to file, I honestly can’t stand the thought of wasting printer ink and paper in the process, so I don’t.
There you have it. My five tax paperwork organizing tips that will hopefully help you reduce the amount of time it takes you to organize your tax paperwork from beginning to end. And while some of this blog pertains to business owners, simply take what is relevant to you and apply it to your situation.
Need an incentive to organize tax paperwork? Think of an activity you LOVE that you’ll be able to do with all the time you save! While I could go on and on, I’m off to work on the activity that was MY incentive to get even more organized this tax season. What activity is that, you’re wondering? I’m writing a letter to the IRS—the first line of which is below.
Dear IRS, I’m thrilled to report that I FINALLY got my life together when it came to tax prep!
Are you interested in learning more paperwork organizing tips? Then check out a few of my other blogs:
How to lose 10+ Pounds During National Organize Your Files week
Office Spring Decluttering: Top Ten Tips
Six Steps to Declutter Your Overwhelming Paperwork Piles
“An hour of planning can save you 10 hours of doing.” Dale Carnegie
LET ME HELP YOU:
If you’ve tried to organize your tax documents or streamline your tax preparation process on your own but got stuck, please tell me where. Perhaps I can offer some words of advice that will help you and others get unstuck. My wish for you is that you’re successful!