AHHHHHH! The taxing issue of the fiscal review…

by MonicaW · Published February 1, 2012 · Updated January 17, 2016

We all have to pay taxes. And we all should review our finances—at least annually—to see what has changed. Rather than have two headaches, I combine the two tasks into one and risk only one pain. This year, I’m sharing my “process”: It isn’t really complicated, but it does take most of a day. I pick one of those dreary or cold winter weekends when I am not tempted to leave the house: Chicago in February, anyone? [Another reason I like to do my taxes early is I receive my refund in a few days rather than waiting WEEKS!]

Not everyone will like to do this in one shot like I do, but each step could be a task, depending on how much time you have…5 minutes or an hour.

Start a tax folder. This is where I put all the tax info for my upcoming filing. I use a gold envelope and simply write the tax year on it. This is also the end destination for all the financial information I decided I should keep for a few years. As W-2s and interest statements arrive, they go into this folder so I can find them when it is time to file taxes.
Gather all financial info. If I’ve been on top of things, this shouldn’t be too hard, but I check all drawers where I may have shoved papers out of sight, purses with old receipts, behind the desk, under the desk, under the couch, etc… Put all these financial papers “away” (wherever “away” is for you). I have an accordion file folder with compartments for each credit card, bank account, retirement funds, charitable receipts, health receipts, insurance papers, etc.
Review each financial account and decide what paperwork needs to be kept and what to throw out. This task can be done in 5-minute increments if not in an afternoon; pick one or two accounts each night to go through and it can be done in a week. I look for any health expenditures where I can still submit a Flexible Spending Account claim, receipts for large purchases (couches, TVs, etc.) that should be saved, donation receipts, house-related expenses I can claim on taxes or should be kept for future reference, etc. I keep the last statement for each credit card or utility bill—something to show what my year-end balance was for the year in case something comes up in the future. For bank accounts, I keep each statement, but review checks to see which can be shredded or saved.
Note any fiscal issues to be address. When looking through all those receipts and statements, it is a lot easier to spot if I spent a lot on clothing or books or something. If I spent a lot on clothes that year for no apparent reason, I then try to keep that in mind as one area to cut back. However, if I just bought a house and am spending more at the hardware store than in the past, it is likely justifiable.
Prepare and file tax return. I still do my own taxes, although I have started using one of the online tax filing systems, so I literally get everything done in one day. If you use a tax preparer, this may be when you schedule your appointment—or your appointment is your deadline to be at least this far in your fiscal review.
Request a free annual credit report. Since everyone is entitled to a free credit report each year, I use tax time as my reminder to do a credit check. For any Illinoisan who hasn’t gotten their free annual credit report before, the Illinois attorney general shares how to obtain it and other consumer protection stuff (if you are in another state, most state attorney general websites have similar info).
Review budget. Take a last look at all your expenses and determine if you need to adjust your budget. Sometimes I realize I didn’t realistically budget for something and need to increase that expense, or maybe I want to cut back on a specific expense because I think I am overspending. If my refund was large, I think about talking to the payroll manager at work about increasing my tax exemptions, which will decrease the taxes taken out of each paycheck [and result in a smaller refund the next year]. If you don’t have a budget, set one! [Here is a budget template.]
Shred, shred, shred! After it is all done, shred whatever paperwork you don’t need to keep. I often have to remind myself most of these paper statements are available online—I haven’t ever needed to download one after it has been shredded, but sometimes I feel better just knowing I can do it. It helps me “let go”. Once everything is shredded, I feel lighter and my house is often a bit cleaner too!
How to spend that refund! I often feel the tax refund is my reward for all that work. I start thinking about how it should be spent…how practical should I be or should I treat myself to something frivolous? I normally end up doing a little of both. I often save half (toward a new car, an extra mortgage payment, pay off a credit card) and the rest is spent or saved for something fun (an expensive dinner, a vacation, or a new computer).