Simply Money

Simply Money

Each weeknight at 6pm, Simply Money makes money simple for you. Join hosts Amy Wagner and Steve Sprovach as they share easy-to-understand and...Full Bio


How disorganization can cost you during tax time

During tax time, do you frantically rummage through your documents to find everything you need, or think you’ll need? It’s easy to just throw pieces of paper in different places around the house, like W-2s in a closet and 1099s in a drawer.

But before you know it, documents are scattered in every nook and cranny.

According to Simply Money Advisors’ research, the average taxpayer may overpay the IRS by hundreds of dollars simply by not being organized. How? You may overlook opportunities to deduct expenses or chances to itemize.

Creating a filing system can be a great way to combat disorganization. After all, the more organized you are, the easier your life will be and the simpler it will be to file your taxes.

This holds true even if you’re working with a tax professional – some Certified Public Accountants actually charge an extra fee if you bring them a disorganized mess!

So, how do you create a filing system?

Start with your income

Create a file that contains any document related to your income. This includes your salary, stock dividends, earnings of any kind, distributions, and interest.

To keep track of your income, keep a running list of every document and how much you made. When you receive a statement or a year-end document, write down the total on your list and include it in the file.

Keep in mind that some tax documents come after transactions occur, such as savings bonds redemptions and gambling winnings. These documents may come in April.

Next, create an expenses and deduction file

This file could amount to an encyclopedia in no time. With medical bills, property tax bills, travel expenses, charitable donations, other business expenses, the receipts can add up. Create an envelope of all your receipts you will need during tax time.

Before trying to itemize your deductions, compare your deductions to the standard deduction. Look at your highest expenses and see if it is even worth adding them up. In many cases, the standard deduction will be more. 

Lastly, make a file for investments 

You may think that your year-end statements will be sufficient enough for the IRS. However, it’s also important to keep track of monthly, quarterly, and yearly statements. Include trade confirmations and any purchase activity in your accounts.

You may just want to keep track of every single document you receive from your investment accounts, including all retirement accounts.

The Simply Money Point 

Having a filing system can ease the pain of tax filing. The more organized you are, the better off you’ll be during tax time.

Wondering how you can lower your tax bill in retirement? Download our Simply Money Advisors Guide to learn more.

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