While taxes are not the most fun thing in life, it is an important one. It’s also a given if you earn any income. If you can’t make them go away, then you might as well embrace them, right?
Here are 5 tips to help file your tax return as a nomad and should I say, make it less taxing.
Kidding aside. As you prepare for tax filing season, let’s make tax time a little less stressful.
Tax Return as a Nomad
1. Stay Organized
It doesn’t matter if these documents come via snail mail or electronically. Be on high alert starting January 15 and stay alert for a month or more. Make sure your spam filter doesn’t catch important emails about tax documents.
To avoid a problem later with the IRS, I suggest checking snail mail thoroughly. Don’t assume something that looks like junk is junk and toss it before opening it and double-checking.
If you think you missed a tax document, I suggest logging into your banks, financial accounts or even a payroll account through an employer. Many times tax documents are available via online logins and employee portals.
If you still think you’re missing something, check with the financial institution, your contracted company or your employer. Things can get lost in the mail or possibly even overlooked, so it’s important to be on top of it.
Once received, put ALL documents like W-2s and 1099s that arrive via snail mail into an electronic folder by scanning or taking a photo of them. If they are downloadable, then store them electronically only. No need for paper records.
For those who use a mail forwarding service, make sure to check often for any tax-related documents. You may need to forward your mail a little more often than you usually do throughout the year. At the very least, forward all mail in February to hopefully get any tax documents organized.
If you have a mail service and they will scan items, then have them do that. They can probably also shred originals for you so there’s no need to worry about doing that yourself. This will save you time and energy getting them stored electronically. You can keep them on the cloud making sure the one you choose is secure. This way all your documents are easily accessible whenever you need them.
Keep an eye out for any tax-related mail!
If you have receipts, then it’s important to keep them organized as well. No need for paper receipts anymore. The IRS allows electronic copies and honestly, paper receipts fade with time making them impossible to read in a matter of months.
Receipts aren’t just for businesses! They can be personal as well. Personal receipts can be for charitable contributions, childcare, healthcare, tax payments, bill of sale for an RV/auto and more. It’s important to keep a copy of all these documents. Scan them or take a photo. Then store them in your electronic and secure tax folder.
There are lots of ways to stay organized with receipts. You can take photos with your phone and add them directly into QuickBooks as an expense if it’s business-related. If they are personal receipts for donations or something, then take a photo and keep that photo electronically in a special tax folder. You can even use software like Evernote to keep organized and store everything electronically.
You get the idea here, right? Use tools to help you stay organized and keep things simple.
Whichever method you pick, the most important thing is to stay organized and to keep electronic records of all your tax documents.
3. Use your prior year’s return
As you’ve seen from the first two items, make sure you are organized and keeping good records. Now that you are organized with all your tax documents in one place you will be ready to compare your taxes from year-to-year.
If you compare this year’s documents to last year’s return, it can help you miss out on a deduction or an account you may have overlooked. This is especially important if a document failed to reach you via email or snail mail. It happens. Things get lost in the mail or go to spam.
If you are a business owner, you should have either an excel spreadsheet or be using accounting software for all your business income and expenses. This helps you keep track of deductions easily and again, you can compare year-to-year to see if you missed anything.
You might also try creating a tax spreadsheet on your own or use my tax document checklist. This can include any sources of income, total business expenses, medical expenses, taxes paid, IRA contributions, student loan interest, in addition to any tax deductions or credits you took last year. This way you stay organized and don’t miss out on a valuable deduction or credit.
Starting in 2018, tax forms looked quite a bit different than in prior years. If you’re struggling with finding matching items, look at the wording and not just the lines. Find the matching wording. You may need to look at extra Schedules 1-5 starting in 2018 to find the deduction or credit.
With all the changes to tax returns starting in 2018, it’s extra important to be organized. This is especially true if you don’t plan on preparing your own return.
4. Be prepared
It’s good to be prepared and organized with all your documents whether you plan on preparing your own tax return or using a professional tax preparer. Use this tax prep checklist to check off all the items of income, expenses, and deductions. This should help you avoid missing any deductions or credits available to you.
As you receive the paperwork for any of the items on the tax prep checklist, check the item off. Once everything is checked off, you know you are ready to file. I know it’s not always easy waiting on tax documents since they can arrive sporadically. Having a template or folder will definitely help you be ready for tax time and hopefully, alleviate some stress.
If you create your own tax organizer, you can copy and edit it from year to year. If anything changes, simply add it in or possibly remove that line for that tax year.
If you don’t enjoy updating a spreadsheet, then at the very least keep all tax documents in one secure (and backed up) folder electronically.
5. Work on next year’s taxes… now!
This is no joke. If you’re tired of not having everything handy and stressing out over finding receipts, income records, and expenses, then it’s time to get organized. Once you’re organized, it’s easy to stay on track for next year.
If you use your truck or auto for business errands, then remember to record your miles in a travel log or mile tracker app like MileIQ. Yes. Do this all year long. I promise that staying organized throughout the year will most definitely make tax time easier!
If you’re a small business owner, then make sure you are keeping track of all income and expenses. There’s accounting software for every budget and expertise level out there, so find one that fits you. Examples include Wave, Freshbooks, Quickbooks, Xero. If you don’t want to use bookkeeping software, use a spreadsheet at the very least.
Keep track of any medical expenses and charitable donations just in case you have enough to itemize deductions. This includes keeping track of health insurance premiums, dental insurance, doctor co-pays, eyeglasses, dentist costs, medications, etc.
If you have rental property, record all expenses related to the property as it comes up (taxes, cleaning, yard work, HOA dues, repairs, upgrades). This way you won’t have to scramble come tax time and struggle to remember expenses or income related to the property.
If you stay on track every year, then tax time will be easier and less stressful. You can share a tax folder with your tax professional or use it yourself so you’re not searching all over for your own records.
Most importantly find a way that works for you to stay organized and use it regularly. Put it on your calendar to enter data weekly or monthly; whatever feels right to you. I promise if you stay on top of things, it won’t feel so daunting later.
It’s also important to know how to pay yourself as an entrepreneur. This might also make tax time easier because you saved up for taxes throughout the year.
I promise once you’re organized, you won’t freak out over your taxes anymore! Less stress is a good thing, right?