Set Up Your System for 2023 Taxes
When we’re preparing to file our taxes for this year, it’s the perfect time to create a system to make the process easier next year. Why? You might be thinking, “Ashley, why add to my torture? I could finally celebrate being done!?”
Taking the time to create systems while everything is fresh in our minds is far easier than trying to remember what was important and what we needed. Taking the time to set up a system for our 2021 taxes will save us lots of stress, time, and (perhaps) money.
Here are four steps to make filing your taxes easier and more efficient for next year. I promise, your 2021 self will thank you.
1. Keep a list of everything you needed for this year.
As you are going through preparing and filing your taxes this year, keep a list of everything you need. Yes, things might change if, for example, you open a new retirement account or have a child, but the list from the previous year is a great starting point. You can make note of any important life changes that may impact your taxes throughout the year.
Keep a list as you go and update it as needed.
Keep this list in an easy-to-find place. I have a specific digital folder for “taxes” where I organize my documents by year. You can have a special file called “tax checklist” so you can find it next year when it’s needed.
2. Plan for deductions in advance.
Picture this. The tax deadline is looming, so you pull everything together as quickly as you can. You find out that you can save a lot of money in taxes if you contribute to an IRA (the maximum you can contribute is now $6,000).
Coming up with $6,000 at the last minute doesn’t work so you contribute what you can. You kick yourself because if you planned in advance you probably could contribute more. This has happened to me many times.
One of the great parts about planning for our taxes in advance is we can plan to contribute to our IRA or take other steps to minimize our tax bill. When we don’t, we’re paying more in taxes than we need to!
To plan for these deductions and smooth out the expense, we can create sinking funds for each deduction or contribution directly to our IRA over time. $231 per paycheck ($6,000 / 26 paychecks) feels a lot different than forking over $6,000 at one time.
As you go through filing your taxes for this year, make note of any opportunity to minimize your tax bill that could use some planning. Do what you can for this year, but then immediately start setting money aside for 2021.
3. Track deductible expenses year-round.
One of the most tedious parts of filing our taxes is to go back and look through our statements to find charitable contributions, medical expenses, childcare expenses, etc. We don’t want to miss out on these deductions, but piecing all of this information together can be quite the endeavor and feel like a chore.
Now that we have our handy checklist (from step 2), we know what types of expenses we want to be tracking. We can do this throughout the year as we check in on our expenses rather than once for the entire year.
I’m a big proponent of Money Parties. A Money Party is time we set aside to look at our finances. We look at what we earned and spent for the month so we can make adjustments based on our goals. Our money parties, when we’re already deeply involved in our spending, are the perfect time to track these tax deductible expenses each month.
In your budgeting spreadsheet (what I call a happiness allocation), make sure you have line items for charitable expenses, medical expenses, your business expenses, and whatever else you track. Keep files for any receipts or invoices you keep so they are all in one place.
Doing these four things sounds far easier when they are fresh in our minds, but they will set us up for a much easier and more efficient 2021 tax season. As you are going through and filing your 2020 taxes, give yourself the gift of setting up these systems for yourself. Not only will it save you time and stress, it will also most likely save you money in taxes.