3 Summer Tax Prep Tips that also Help You Declutter

Tax prep already?? You bet. Tax season has a way of sneaking up, leading to the inevitable treasure hunt for receipts, hours of digging through old paperwork, and general gnashing of teeth. Once April 15th is behind us, we breathe a sigh of relief and collectively agree never to think about taxes again…until next April, when we rinse and repeat the whole stressful experience.

Summer is actually the perfect time to get ahead and break the cycle. The pressure is off, life has a little more breathing room, and the decisions you make now can set you up for a much smoother tax season next year. Not to mention, getting your financial paperwork in order often goes hand-in-hand with a satisfying declutter of your home office, files, and digital storage. Win-win! As it turns out, being Smart About Money™ can be as simple as getting organized.

Track Your Summer Expenses (They Might Be Tax Deductible)

Did you know that day camp for the kids or the class you just took could count as deductions? You can’t deduct what you haven’t tracked, so here are some expenses to earmark and discuss with your tax preparer:

• Child and Dependent Care. Summer camps and childcare costs may qualify for the Child and Dependent Care Credit if the care enables you (and your spouse, if you’re filing jointly) to work or look for work. Day camps typically qualify; overnight camps usually don’t. Keep receipts and the provider’s tax ID handy.
• Education and Professional Development. Sometimes, it really does pay to stay in school. If you’re taking a summer course, attending a conference, or pursuing certification relevant to your current career, those expenses may be deductible.
• Job Searching. If you’re exploring new opportunities in your field this summer, some job search expenses may be deductible when combined with other qualifying costs. Think résumé preparation or career coaching. Thresholds and eligibility can vary, so be sure to check with your tax preparer.
• Moving for Work. Certain moving expenses may qualify for deductions depending on your situation, so save those receipts.
• Home Office. If you work from home, summer is a good time to make sure you’re documenting your home office use accurately throughout the year, rather than trying to remember how many home office days you logged a year later.

Another major expense to watch is home improvement costs. When you eventually sell your home, capital improvements like a renovated bathroom or a kitchen makeover may be added to your home’s cost basis, which can reduce your taxable gain at the time of sale. However, be aware that what qualifies and what doesn’t can be nuanced. Routine maintenance like painting generally isn’t deductible, so save all of your receipts now and show them to your tax preparer to see if they may help reduce your tax liability.

Make Saving Receipts Realistic

By the time tax season rolls around, summer feels like ancient history. You won’t remember what you spent, and we all know how easy it is for receipts to slip through the cracks (literally–digging between your center console and driver’s seat the day of your tax appointment is not a fun experience).

The biggest challenge is that we pay for things in so many different ways now: apps, cards, phones, and online checkout. Digital receipts and phone notifications get buried in your inbox, and physical receipts fade, meaning that the Home Depot receipt you stuffed in your wallet in July may be a blank slip of paper by December.

It sounds old-fashioned, but a printed or photocopied receipt in a clearly labeled folder is much easier to dig out than the one that’s “somewhere on my hard drive.” Receipt-scanning apps can also help, as long as you’re committed to using one consistently. Remember that a half-organized system can be harder to navigate than no system at all! The key is to pick an approach that you can realistically maintain.

Start Decluttering Now, and Thank Yourself Later

Paper clutter, specifically old statements, outdated files, and years of accumulated documents, has a way of piling up. It’s also one of the biggest burdens we hear about from clients who are preparing to downsize. So why not get a jump on it? Building a simple document system now can work in two directions at once: it keeps you organized going forward, and it gives you a framework for tackling the backlog.

A few practical guidelines:

Keep tax returns and supporting documents for the last six full tax filing years, since that’s the window during which you can be audited. Anything older than that can be considered for shredding–grab a more detailed guide on what to keep and what to shred here.

Review monthly account statements as they arrive, and check them against your year-end summary. If everything matches and there are no discrepancies, you can keep just the December statement and shred the rest.

Documents to keep forever include insurance policies, annuities, your original signed will, and other estate planning documents. These should be stored in a fireproof location like a safe or even a freezer, not in the general files you’re sorting through each year.

When you’re getting rid of what you don’t need to keep, don’t just toss sensitive documents in the recycling. Invest in a cross-cut shredder to limit your exposure to identity theft. You can also head to a community shred event–many banks and credit unions host them, especially in spring and fall.

Once you have a system working well for current documents, you can apply that same approach to older files: gradually work through the backlog at a pace that feels manageable. This is a great opportunity to enlist some help! Traci gave her son Graham an opportunity to earn some summer cash by helping her sort, scan, and shred the mountain of papers in her filing cabinets. 

Make It a Habit, Not a Scramble

Financial planning doesn’t have to be a big deal, and neither does tax prep, when you build a little organization into your summer routine. You can easily make next April less stressful by spending a little time now to set up a folder, keep receipts organized, shred what you no longer need, and take note of any major expenses. Then, be sure to talk about those possible deductions with your tax preparer and financial advisor before the year’s end, so you can create a thoughtful tax strategy.