Get Your Financial Records in Order for Tax Season

tax form 1040It’s a brand new year and you are probably thinking of all the exciting plans you have and how to stick to your resolutions to improve your health and well-being. In the spirit of committing to better habits, use the month of January to get your financial records from the prior year in order. This way you can quickly file your taxes and move on to more adventurous activities.

There are several reasons you might be hesitant to get such records together. Yes, it may be time consuming work if you don’t already have a good record keeping system in place. Yes, you probably don’t really want to know how much money you spent last year. Lastly, it’s highly likely you don’t want to know how much you owe in taxes. These are the common rationalizations for putting off dealing with tax records until the last minute.

Remember the “good habits” resolution you probably set for yourself? Putting your records in order NOW will set you on the path to keep your records in order throughout the year so that next year you won’t have to go through this process. That goes double for having an understanding of where your money is spent as you can’t make responsible spending decisions this year if you don’t know your current habits. Lastly, filing taxes early means that you either get your refund early or you have more time to plan for paying what you owe. That’s much better than sitting down on April 16th and finding out you have to pay hundreds — or more — than you expected.

Organizing financial records is a simple, 4 step process.


Do you know where all your financial records are? If you’re like most people, you probably keep some records online, some in files or desk drawers, and others scattered all over your home and office. In the age of Square, ApplePay, and PayPal, the average home gets their “receipts” for purchases in different forms and keeps them in different locations.

Your first job, therefore, is to gather all that data. This may involve printing out copies of digital receipts or downloading copies of bank statements to your computer. Whether you are collecting paper records, compiling digital records into one folder or using a combination of digital and physical records, this is likely the most time-consuming part of the process.


folder For Household Bills

Now that you have all your records at hand, think of how they group together. Traditional groupings include housing, transportation, food, health care, household purchases, entertainment, insurance, etc. You may have business-related expenses whether you are self-employed or not. Special events like the birth of a child, marriage, changing jobs, or moving from one state to another will have their own records and should be grouped together.

As you separate your statements and receipts into categories, think not just about transactions from the prior, but how these same categories will apply this year — and every year going forward. As you create files and folders to hold your records for last year, make sure you set up new ones for this year’s activity. This will give you a ready-made place to put every receipt, invoice, and statement as soon as you get them.


Wait until you have all your records organized into the appropriate categories and then tally them. Depending on the complexity of your finances, you may need to use a personal accounting program like QuickBooks. You can also find templates online for creating simple spreadsheets to track your taxable expenses and deductions.

The advantage of doing this right now is that if you find one option to be too confusing or unwieldy, you can switch to a different system and still have time to get everything ready for your taxes. Finding the right system will put you in great shape for the last step.


calculating financial data

You now have filing and recording systems for tracking your finances. If you repeat the above steps on a monthly or even weekly basis throughout the year, you won’t have a monster project to tackle when tax time comes around next year. It will all actually be done for you and all you’ll have to do is fill out your taxes — or send the records to your accountant.

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