How to Organize Tax Information throughout the Year: Save yourself the headache in April

The operative word here is "organize." The more organized you are, the easier it will be for you to file your taxes. If you could keep your tax relevant items organized on an ongoing basis throughout the year, your tax return would be no problem at all. The sad news is that "organize" is not a noun, but a verb. That is, it is not something you can buy, but something you must do. Therefore, your best results will come from a commitment to keeping, filing, and maintaining records throughout the year. That said, there are many resources to help you get organized. Here are some of them.

For 2009, your basis for record keeping will be your 2008 tax return and the documents you assembled to complete it. These documents would include your forms W2, 1099, your list of charitable deductions, your list of tuition payments, and anything else you used to complete your 2008 tax return. Your best bet is to put this collection of documents in a file folder marked "Taxes 2008" and kept in a place where you can easily find it. When tax time comes around again next year, you will have this collection of documents to help you know what forms to expect in the mail from your employer, your investments, and your banks.

The lists will tell you what receipts you should be saving, but more importantly, you can start your list for next year's tax return right now. Having the discipline to write down each deductible expense as you incur it will save you searching your checkbook and adding up a zillion slips of paper at tax time. Instead you will simply have a list of figures which you can add down.

The lists do not have to be paper lists. You can use a spreadsheet or bookkeeping software instead and have the utility therein to keep running totals.

Another way you can ease next year's tax prep headache is to make your record keeping as automatic as possible. One way to do this is by using your bank's bill paying feature. If your bank does not offer this service, you might consider switching to a bank that does.

Most bank-run bill paying services allow you to categorize your payments. Come tax time, you can simply go online and print out a report.

Using a credit card for tax deductible expenses can be a useful tool to keep track of them, since you will get a monthly statement. But then you must have the discipline to go over each monthly statement when it comes in and flag the tax deductible items. Ideally you would transfer these items to your electronic or paper list as you flag them. That way you will sidestep the arduous task of going through a massive amount of data when you are doing your taxes by assembling this data bit by bit all year.

If you use an accountant, you are probably familiar with the questionnaire many accountants use to help you assemble your information. Tax preparation software, such as "Tax Cut" and "Turbo Tax" use the same kind of interrogative method to extract the necessary information from you. This step-by-step approach helps make the tax preparation process clear, and automatic population of data and worksheet inclusion are real time savers.

In general, tax preparation software is much less expensive and much more convenient than an accountant. It is possible to have a tax return complicated enough so that using an accountant is a good idea, for example, if you own a small business, particularly one that might benefit from depreciation of capital equipment. However, if you have nothing more complex than a primary residence and some interest income, tax prep software would be a great choice for you. Tax prep software makes filling out Schedule A easy.