I’m preparing all our tax documents for the accountant, and every year I tweak a little more the “Package” I send him. Instead of collecting hundreds of paper and giving my accountant a giant folder, this is what my wife and I do:
- We scan everything the accountant needs, from receipts, to bills, invoices, etc., etc. We don’t like paper, so we make a conscious effort throughout the year to snap a photo or scan everything that could be of use for tax time.
- Then we put it in a nicely organized folder structure for guidance. I update this folder structure a little every year, depending on the circumstances, but generally it looks the same.
- It contains one folder to store the records after the filing the taxes to the IRS.
- One folder for each corporation you have/own, of which you have some pass-through taxation.
- Folders for Personal Income, Expenses, Investments, Deductions and Credits
- Rental Properties Income and Expenses (if any)
- You can download a ZIP file with the template folders and files HERE
- We zip it and protect it with a very very very strong password that we store in LastPass for every year that goes by.
- We delete the folder and only keep the protected zip file (with its respective backups)
- Then we send the zip file to the accountant. If is small, we can email it to him, otherwise we put it in a USB Drive and hand it over. Not to worry about leaking the information, the zip is password protected.
- We share the password via LastPass sharing feature with him, and he can safely access the zip contents.
- After the accountant is finished, we review it, and he files with the IRS.
- After filing, we add the filing records to the safe zip file, and ask him to please delete any unsecured unzipped version from his computer. (If you don’t trust your accountant to do this, find a different accountant)
- Just as additional precaution for tax documents archival, we change the password of the zip file again with a random secure and long LastPass password, and then we archive the zip file in Long Term Storage for the next 7 years.
Normally this is part of the accountant’s job, isn't it? So, why we do it? Well, needless to say that I don’t cope well with things I don’t understand. I’m a bit of a control freak and I like to absorb everything and anything that touches me in a personal, professional and economic level. Taxes are one of these subjects, and a rather complex one. Every year I’m surprised to see how many people doesn't take full advantage of the tax system we have, and the only reason for this phenomenon is that we don’t understand it because “it’s too complex”, and unfortunately, it’s true.
I’m no tax expert by any stretch (that’s why we have our accountant, and you should have one too), but having this discipline in organization and routine for tax season throughout the year, has helped me comprehend a little better how taxes work.
Every year, our accountant loves us, and our bill is lower when compared to other people, because we organize ourselves well and have everything handy. There is always additional questions and clarifications where we have to have a small chat, but he assures me it’s nothing compared to the rest of his clients.
I hope my accountant will continue to service my tax needs forever, but realistically, it’s not always possible. Having a good understanding of your own taxes, your tax files, and having a good and safe archival strategy for these is paramount to be good friends with the IRS and have peace of mind for years to come.
How do you organize yourself and your family for tax season?