Have you broken out in your usual sweat anticipating tax time?

Do you find yourself dreading the hours it’s going to take to round up the papers you’ll need to complete your tax planner?

Being ready for tax time is all about having a system for keeping certain paperwork separate from others.

STEP 1 – Make a dedicated home for tax papers

This sounds overly simple but it works like a charm – the key to efficiency is keeping your tax related paperwork separate from other papers. Create a box or file labeled “TAXES.” Anything that is easy to drop things into throughout the year is the perfect container. If you want to get fancy, subdivide to create homes for deductions, proof of income and other year end tax statements.

STEP 2 – Understand Your Deductions

If you’re keeping every single receipt and account statement, it’s worth asking your tax preparer to give you a list of documents you actually need to keep. Typically these are only receipts and statements that prove expenses you claim as deductions on your taxes. Common deductions include:

• Charitable donations
• Childcare expenses
• Medical expenses – pharmacies can provide a summary list of purchases
• Real estate sale or purchase papers

For paper organizing, it’s important to understand the difference between a general living expense and an expense you can claim as a tax deduction. For example, gas station receipts are a general expense, but if you use your car for business they could become a tax-deductible expense. There may be other reasons you want to keep every gas receipt – budgeting, MPG tracking, etc. but you may not need them for taxes. Every person’s situation is unique. Understanding your needs helps you know what papers are important and what you can get rid of.

STEP 3 – Work Smarter Not Harder with Helpers

If you want to take your financial organizing to the next level, consider the following:

• Use a money management tool during the year to categorize your expenses automatically. They enable you to run a report at the end of the year (though, you still need to keep your original deductible receipts.)
• Create a simple spreadsheet with your categories to speed up the totaling and to create a permanent record.
• Create a simple filing system to manage your papers throughout the year.
• Have a professional organizer or bookkeeper come in to rescue you from tax-prep overwhelm — They can set up a sound system for the current year and get you ready for the next year.

Anything you do to organize your paperwork goes a long way towards managing your stress — freeing you to enjoy your life.