Tips and Tricks to Make Your Taxes More Manageable
We’ve all heard the saying that the only two things constant in life are death and taxes, yet each year many of us search for shortcuts to make the process less, well, taxing.
In one of my previous blog posts, I acknowledged that you don’t necessarily have to fill out each and every section of the tax organizer your accountant gives you, and I may have more good news this year:
The standard deduction has increased, so unless you have significant medical, charitable or other deductions that exceed the following, you don’t have to itemize everything.
I will say that sometimes you can be surprised when you add it all up, so if you’re not absolutely sure your deductions will fall below those limits, you should still go through the process.
Here are a few tips to minimize the aggravation of itemizing your deductions.
Start With Your Annual Credit Card Report
Many credit card companies provide an annual report that categorizes your spending. This report can help you understand where your money goes, and decide if it’s worth going through the process of itemizing your deductions.
If you decide that it is, you can take the category totals and give it to your accountant, though you’ll need to add this up for all your accounts (credit card and bank accounts).
Remember: your accountant may not need to see the specific list of items you buy, just the category totals. This is especially relevant when it comes to your medical expenditures. Check with your accountant to find out if they need to see any detail.
Download Your Transaction History
Most banks and credit card companies give you the ability to export your transactions into an Excel file, which makes it easier to categorize and add up expenses.
Here’s how to use this to your advantage:
Access each of your accounts online and download your transaction history for the previous year into an Excel file (a CSV file which converts into Excel is also an option).
Combine all this data into one master file.
Be aware that it may take some organizing to make the columns of each download match. Sometimes it’s easier to sort through the accounts individually and then add up the category totals.Provide the category totals to your accountant.
Be aware: some banks will only keep your check images on file for 90 days. If that’s the case, you’ll need to make sure you’re downloading your transactions and noting the checks throughout the year.
A good rule of thumb is to download the transaction history every month when you pay your bills.
The Amazon Problem
Amazon doesn’t tell you on your credit card statement what you bought, so it’s hard to know what’s deductible and what’s not. The good news is you can download a transaction report to get an itemized list.
To do this, visit Your Account and then scroll down to the Ordering and shopping preferences. Click on Download order reports.
Note that the “Amazon problem” is also true of Paypal, Venmo, and other payment services. You may need to go to their website to download your transaction reports.
Accurate Prescription Purchases
If you purchase prescriptions through a grocery store or pharmacy like Walgreens, you may have just as much trouble as you do with Amazon. Those stores have many other things that you can purchase other than prescriptions, so you need to have a way to hone in on the prescription charges.
As a rule we don’t like to rely on receipts because there’s a chance some may not have been saved throughout the year. Instead, I recommend going to the pharmacy and asking them to print out a report of your prescription purchases for the last calendar year.
If you use multiple pharmacies, you’ll need to do this at each one.
Bonus: Evaluate Your Spending
There’s no doubt that preparing your taxes involves a lot of number crunching, but if you have to do it, why not use the information to your advantage?
If you’ve gone through the process of downloading your data, you now have all the information you need to take a good look at your spending. It may surprise you to find that your daily latte is costing you $1,000 per year, or just how much you're spending on different streaming services.
If taxes seem daunting, or if you are tasked with managing taxes for yourself and an elderly loved one, please contact us to learn if hiring a daily money manager would help you.