Ten Steps to Simplify Your Finances, Part 3

Here’s Part III of my thoughts on Consumer Reports’ ten steps to simplifying your financial life. Today we’ll be covering steps 7-8…

(7) Computerize your taxes. If you’re still kicking up eraser dust when you fill out your 1040, it’s time to join the digital age. You’ll probably discover that you save hours of work. The IRS estimates that the average household will spend 14 to 16 hours completing Form 1040 and related forms and schedules, not including Schedule A or D. By contrast, Intuit claims that users of its best-selling TurboTax software will be able to do the job in about four hours.

(8) Toss that needless paper. If you save every receipt, canceled check, and bank statement, you’ll spend all your spare time shopping for file boxes at the Container Store. So retain receipts and other records that support items on your federal tax return for as long as the IRS can hit you up for additional tax. Generally, that’s up to three years from the date you file your return, but the clock ticks for six years if the IRS suspects you underreported your income by more than 25 percent.

Save ATM, credit-card, and debit-card receipts for big-ticket items in case you have to return them. Get rid of receipts for other stuff (restaurant meals, gas, and so on) after the transaction appears on your statement. Retain loan agreements only as long as your account is active. If you buy or sell investments, keep the paperwork while you own them and then for seven years after you sell.

My thoughts on these:

(7) We’ve been doing our taxes on the computer for years now, and it’s been great. That being said, we’re going to switch to an accountant this year. First of all, we moved, and our taxes will be a good bit more complex than usual (lame excuse… we’ve moved before and I’ve still done them myself). Second, we now have a growing side business, and we’re looking for some help in minimizing the tax hit. Thus, for at least the first year, we’re enlisting the help of a true expert.

(8) We save tax records and year-end investment statements. Beyond that, I try to go through our files every year and shred/recycle most other account statements. Receipts hit the shredder as soon as we’re sure we don’t need them (end of the month, if not sooner — unless it’s something we might need to return or have serviced).

See also: Part 1, Part 2, Part 4

[Source: ConsumerReports.com]

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One Response to “Ten Steps to Simplify Your Finances, Part 3”

  1. Anonymous

    Another tip is to scan everything into PDF and store on separate hard drive or burn to disc. Buying adobe pro or getting a scanner or multi-function machine that has scanning software to store into PDF is worth the expense to be able to store everything electronically anyways.

    I have ten years worth of tax history on pdf as well as copies of all our important documents, major receipts, etc. you get the idea.

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