CARL WATTS & ASSOCIATES

May 12, 2014

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Get Organized Now for
Next Year
2014 tax season is officially over; tax refunds received or payments made and everything tax-wise dealt with … well, maybe not everything. It is now the perfect time to get organized and ready for next year tax season. Here are a few suggestions on how to do it.

It is usually at tax time that you realize whether too much or too little money was withheld from your paychecks throughout the year.

Therefore, if you find yourself owing money to the IRS each year for several years, there’s a very good chance that you simply need to adjust your withholding number on your W-4.

Also, some life events, like a change in marital status, the birth of a child or buying a home, can change the amount of taxes you owe. When such events occur during the year, you may need to change the amount of tax taken out of your pay.

Review your paycheck to make sure your employer is properly withholding and reporting retirement account contributions, health insurance payments, charitable payroll deductions and other items. These payroll adjustments can make a big difference on your bottom line. Fixing an error in your paycheck now gets you back on track before it becomes a huge hassle.

If you are self-employed or have additional sources of income, make estimated tax payments. In addition to being more palatable than one giant lump-sum tax payment in April, doing so may actually help you lower your overall tax bill by avoiding estimated tax penalties.

Organize your record-keeping. Establish a central location where everyone in your household can put tax-related records all year long. Anything from a shoebox to a file cabinet works. Just be consistent to avoid a scramble for misplaced mileage logs or charity receipts come tax time. Remember that those with better records pay less tax. It’s best to start your new and improved system of tax organization at the beginning of the year. If you have someone who prepares your taxes, organization can save you not just time, but money. If you have your ducks in a row, that means less time your tax preparer needs to spend looking for information, which should mean a lower rate to prepare your return.


At the same time, many people claim the standard deductions because they did not have their records in order or because it is just easier. Consider itemizing deductions and, for this too you need to get your records organized and keep a record of each charitable contribution you make, or medical expenses as well as business and vehicle expenses. Most of the times people just pick up a receipt that could be a potential tax deduction or liability and toss it down in a drawer, purse, or glove box.


To make your mountain of documents easier to store, try scanning them and keeping them as PDF files. This way you can print them out if you need them. If you do this, remember to back up your computer as well.

Here are some examples of tax-related documents that you might want to keep:



  • W-2 forms;
  • Pay stubs for the year;
  • Mortgage payment stubs and/or home purchase closing statement;
  • Last year's tax return (for quick reference and comparison);





  • Receipts from anything you might claim as an itemized deduction;
  • Receipts from any charity (e.g. for church tithes, disaster relief donations, etc.);
  • Car mileage log and/or other car expenses in case of business use;
  • Any receipts for business travel expenses;
  • Canceled checks (especially for IRA contributions and other deductions);
  • Credit card statements and bank statements (to verify any deductions);
  • Medical bills (especially if they exceed 10% of your income);
  • 1099-G form for deducting state or local income taxes;
  • 1099 forms (for any income paid to you);
  • Mobile phone bills (especially if you made charitable donations by text message).

Also, the IRS recommends that you keep all tax-related records for 3 years in case of an audit.

Now is a good time to shop for a tax professional; you'll have more time when you're not up against a deadline or anxious for your refund.

If you do your taxes yourself, are you sure you’re doing a good job? Could your time have been used more productively by hiring a professional? Maybe this is a good time to get a second opinion review. There is a possibility that you could get a bigger refund or identify potential problems.

If you already use a tax professional, were they knowledgable? Do you have doubts about their competence? Will they still be in this business next year or are they a part-time preparer who just work a few weeks a year. Now would be a good time to interview tax preparers for next year.

One other question you should ask yourself is: Were you unhappy with your 2013 tax bill? Well, the best way to make sure you don’t feel the same way again next year is by planning ahead.

Make no mistake, tax planning and tax preparation are not the same thing. Tax preparation tallies up your income, deductions, exemptions, credits, etc. and calculates the amount of tax you owe. Theoretically it does not change your tax liability, it should just report your taxes accurately and properly.

Tax planning, on the other hand, can help you change your tax liability in the future.

Good tax planning implies the systematic analysis of differing tax options aimed at the minimization of tax liability in current and future tax periods. Whether to file jointly or separately, the timing of a sale of an asset, ascertaining over how many years to withdraw retirement funds, when to receive income, when to pay expenditures, the timing and amounts of gifts to be made, and estate planning are examples of tax planning. Obviously, a good tax expert is a sure bet both for tax preparation and tax planning.

Come back every week for more news and useful information for your taxes and financial health.

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office@carlwatts.com
Washington DC
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