If it’s the last thing you do this year, get your finances organized. The week between Christmas and New Year’s is the perfect time to finish off those financial leftovers!
Do yourself a favor. Stop at an office supply store — or order online — and purchase a couple of plastic file boxes and some hanging folders. It’s time to organize your 2014 records — and set yourself up to collect all your 2015 financial information efficiently through next year. Here’s what to put in them:
The Annual Box Information
You’ll want to set up two types of file folders — one for taxable income, and another set for deductions. We tend to live in a paperless world these days, but there are some important exceptions.
Income
In January you’ll receive a W-2 form from each employer if you have more than one paying job. Save those, along with your last paycheck stub from the end of the year. The W-2 will show not only your earnings but how much was paid into Social Security on your behalf, and how much was withheld in federal and state income taxes — money on which you might get a refund!
You’ll also start receiving 1099 forms from any company that paid you for your services as an independent contractor. You should have been making quarterly estimated tax payments on this income. Be sure to keep that documentation in this folder as well.
You may receive other versions of the 1099 form, detailing interest and dividends for your savings and investment accounts or capital gains distributions from mutual funds and stock brokerage accounts that are held outside retirement accounts. They will all come in the mail in January, so put them in a folder as they arrive.
The worst penalties the IRS hands out are for people who fail to report income. Since the companies that issue these forms report directly to the IRS by computer, it’s important to make sure that you keep the forms so you can report all your taxable income.
Deductions
There aren’t that many deductions left on the tax forms, but you want to make sure you take every one that you’re entitled to use. So set up a different group of folders for deductible items.
They include the lender’s statement of mortgage interest you paid in the past year, as well as a receipt for property taxes.
If you’ve made donations to charities, you will receive a written receipt. Keep those letters of acknowledgment to substantiate your contributions. And be sure to get letters of appraisal if you’re donating goods worth more than $500. (For multiple items, or higher value items, you might need a “qualified” appraisal, given by an expert in the field.) All of this information goes into a separate folder.
Create another folder to save receipts for business expenses, such as business entertainment expenses, that are not reimbursed by your employer. Keeping a mileage log for your business use of a personal car is a must, along with receipts for gasoline expended on driving for business purposes. Similarly, dues or subscriptions to business organizations or publications may be deductible.
One More Box — The Forever Box
While you’re at it, you might consider purchasing one more storage box — preferably metal and with a handle. That’s where you’ll put all the valuable items you might want to remove from your house in a hurry — in case of fire or flood.
In that box you’ll put titles to your property and car, a copy of your life and property insurance policies, will or living trust and powers of attorney, birth certificates for yourself and your children, military separation records, cemetery deeds, professional licenses and any other items that would be difficult to replace. In fact, you can get the full list when you get my free, downloadable, personal financial organizer by signing up at TerrySavage.com.
You might even want to scan your oldest family photos, put them on a thumb drive, and drop that into your box for safety. Similarly, you can do a “walking/talking” video tour of your home’s interior for insurance purposes. If all were lost, it would be good to have a record of the fact that you had a leather couch or wool carpet — higher quality than the typical “replacement cost” policy would provide.
Keep a folder with records of home improvements over the years as well to adjust your cost basis and possibly avoid taxes when you sell your home.
Do yourself and your family a favor this slow holiday week. Don’t just put away the ornaments on your tree. Carefully file away the important documents of your life. At the least, it’s a convenience for taxes. At the worst, it will save you some heartache. And that’s the Savage Truth.
Terry Savage is a registered investment adviser and is on the board of the Chicago Mercantile Exchange. She appears weekly on WMAQ-Channel 5’s 4:30 p.m. newscast, and can be reached at www.terrysavage. com. She is the author of the new book, “The New Savage Number: How Much Money Do You Really Need to Retire?”