If you’re tired of scrambling every year to get all your ducks in a row to do your taxes, here’s a guide on how to prepare yourself for tax season throughout the year. It takes a bit of organizing as the year progresses, but you’ll be gifting your future self every January. You deserve a peaceful beginning to each new year. Let’s do this!
Stay Organized All Year
The best way to do this is to create a system to keep yourself organized as the year progresses. Here are some things to keep up with throughout the year.
1. Keep All Tax Information in One Place
You’ll be receiving information throughout the year that you’ll need later for tax season. Some documents you’ll get on paper and others you’ll get in digital files.
Make sure to create one location that you put everything pertaining to taxes. Create one location on your computer and/or in the cloud for your digital documents and create another location for your paper documents like in a file folder. Or, you could convert all the documents into one format and put them all in one place. Also, make sure to keep at least two backups of your files. We’ve had several hard drives crash and have lost all our data on them.
By creating one place to house all of your tax information, you know where you should file your documents throughout the year and you know where to find it all during tax season.
2. Record Transactions & Receipts as they Happen
You can get receipts for all kinds of things throughout the year. For example, each time you make a donation to Goodwill, you want to file your receipts and a list of the items donated in one location.
We keep our receipts digitally in one place. So when we get a Goodwill donation receipt, we take a picture of it and put the picture in our digital tax file. Then, we input the donated items on a spreadsheet at the same time. When tax season comes, we go to one place and can easily add up the total value of the items we’ve donated throughout the year to input this information on our tax return.
If you’re a small business owner, make sure to keep up with all of your income and expense transactions each month. We recommend using accounting software to connect your business bank account to and sync your income and expenses. Wave is a free accounting software we’ve used in the past. Or, you can get a more robust system with Quickbooks or Xero.
When you keep up with your receipts and transactions, you’ll be gifting your future self next January with time to have fun. Way to go!
3. Track Mileage for Business Expenses
If you’re a small business owner, track your mileage throughout the year so come tax season you’re not scratching your head trying to remember drives you took a year before and missing out on deductions you can make.
Track your miles as you drive them. Do this using a notebook in your car or use an app. A great app we use is Mile IQ. With the app on your phone, it records all of your drives and you can categorize each drive as either personal or business. Then, you can either integrate Mile IQ with your accounting software or pull reports of your mileage to easily see the value of the miles you’ve driven each month and throughout the year.
4. Keep a Travel Log
As you travel, you may be earning money in several different states throughout the year. Depending on each state, you may need to owe income tax to some or all the of the states you’re working and traveling in. If you owe depends on each state’s laws that you work in, how long you’re in the state, and how much money you earn while you’re in the state.
To be prepared, we recommend maintaining a travel log all year long. Record your locations and dates as you go. You can see an example of a travel log in this article.
5. Pay Quarterly Taxes & Save Money for Taxes You’ll Owe
In the United States, we have a “pay-as-you-go” tax system. This means as you make money, you pay taxes on the money you earn. If you work for an employer, they withhold these taxes on each paycheck. If you’re self-employed, it’s up to you to pay your taxes quarterly throughout the year.
Everyone has their own personal preference of either wanting to receive a tax refund or to owe money on April 15. However, we all want to avoid paying any extra interest and penalties. For cash flow and budgeting reasons, make sure to put aside money each month to prepare to pay your taxes.
If you’re self-employed and need to pay quarterly taxes, the easiest way to avoid any interest and penalties for underestimated tax payments is to look at the total tax you paid last year then divide that number by four. You’ll pay that amount of tax each quarter. Make sure to save enough each month to pay for these quarterly taxes. If you’re making more income than last year, you’ll need to save additional amounts each month for the extra tax you’ll owe this year.
Prepare for Tax Season
Before you file your taxes, here are a few questions to ask yourself and things to do to organize yourself and get ready.
1. What taxes do you need to submit?
Each year you must file a federal tax return. You also need to figure out which states you need to file tax returns for.
Like we shared, as you’re traveling you may have earned income in several different states where you owe taxes. Here’s an article on how to determine which states you need to complete taxes for. Use your travel log as a reference.
2. Who’s doing your taxes?
Are you doing your taxes? Or are you hiring someone? Either way, determine when you need to have everything completely organized to do the taxes yourself or share all of your documents with your CPA.
If you’re using a CPA, figure out what format they want all your information in. Digital or paper? Make sure to give yourself time to gather and format all your information for your CPA to work through it, so they have everything they need to do your taxes well.
3. Receive Forms & Organize Your Documents
What are all the forms and documents you need to gather to complete your taxes?
You’ll be receiving all of your necessary tax documents by January 31 each year and you’ll need to compile other information. To make this process easier, we have a checklist for you to use. As you get documents, work through the checklist step-by-step compiling all of the forms and information that pertain to your situation and gather it all in one place.
4. Complete Your Taxes
Way to stay organized all year long! Now, you have all the information you need and it’s time to complete your forms and file your taxes.
The due date for tax returns is typically April 15 each year. If you need to file an extension, you can get an extra six months to file your paperwork. However, just so you know, when you file an extension, you still need to pay the taxes you owe by April 15. The extension is just for sending in the paperwork.
Make sure to follow this guide next year to prepare for tax season all year long. End the frantic and stressful beginnings to each new year. Gift your future self by staying organized.
Adam & Lindsey Nubern
Adam Nubern -CPA and Lindsey Nubern help RVers, digital nomads, and location independent businesses with their taxes and accounting at Nuventure CPA LLC. They are digital nomads and have been traveling for over four years in the US and abroad out of backpacks, campervans, and RVs. They live the lifestyle and enjoys helping folks navigate their numbers while being on the road.