Tips like these helped us pay off $127K in debt. You can read our story in Slaying the Debt Dragon: How One Family Conquered Their Money Monster and Found an Inspired Happily Ever After.
Welcome to 31 Debt Free Missions! This year on Queen of Free, during each day in January, we will provide 31 concrete debt free missions or challenges for you to take on to #SlayDebt and take charge of your finances this year. Each mission will take you less than an hour (some will only require 15 minutes). Whereas, 31 Ways to Kick Debt in the Teeth (which I’m reworking this year and reposting in January, too) focused on some of the philosophical changes you need to make in order to be successful with money, 31 Debt Free Missions are action steps to put into place after you have your thinking straight. Even better, during the month of January, we’re revisiting each of these challenges in order to sharpen our money saving and debt slaying skills.
Again the King of Free is bringing you the task at hand, another new one this year.
Are you ready? Your mission is as follows:
Day #3: Create a Tax Box
“Yay Taxes,” said no one ever. Our communal dread of just the word “taxes” can shut us down to the point that we don’t want to deal with the inevitable – Uncle Sam’s coming. That kind of fear leads to less money for you and more money to pay for yoga classes for Federal employees (Google it). Pay for your own yoga class with the money you’ll save by being organized. So breathe deep, stretch yourself a little, and reach the goal of paying as little in taxes as the law will allow.
But first a conspicuous DISCLAIMER: Nothing in this post is legal, accounting or other professional advice. Mostly, I’m talking about a box. With a lid. Seek advice from a tax professional. If you don’t have one, you can use mine. His name is Gary and he’s been our trusted advisor for about 15 years. Tell him I said hey.
WHY THE BOX?
Because it was big enough to hold an 8 ½ x 11 sheet of paper or notebook (he writes as he shrugs). And again, it has a lid. The lid is sturdy and removable. We didn’t want documents we needed for our taxes to be open air nor did we want a closed box with a slot because we needed regular access. We tried file folders. That was short-lived. In a perfect world, we’d organize as we go throughout the year, but it’s been easier to put all documents in one box and organize at tax time.
INVOLVE YOUR KIDS
Years ago, we had the Princesses decorate the box. It’s fun and makes it less dreadful when you use the box. The kids know the importance of good record-keeping. “Do I need to put this receipt in the tax box?” Princess Youngest asks handing me her old receipt from Wal-Mart for a Butterfinger she got while with Nana. I didn’t say, “No” (it didn’t go in the Tax Box either). We’d rather encourage the thought process than try to explain the Internal Revenue Code. Better safe than sorry.
WHO NEEDS THE BOX?
If you are possibly going to itemize your deductions you need a Tax Box. Even if you haven’t been able to itemize in the past, your world can change pretty quick in the middle of the year and you don’t want to be in a spot where you have to recreate your past financial history. Not everybody can itemize. While not in downward dog, our enlightened Uncle has made it difficult for regular folks to itemize their deductions. For example, in 2015 the standard deduction (what everybody gets without trying) for married couples filing jointly is/was $12,600.00. It’s $6,300 for singles. If you itemize, you’ve also got to have proof lest Sam slip into warrior one on you; hence the tax box.
WHAT GOES IN THE BUCKET?
It’s a box, not a bucket. Stay with me here.
- MEDICAL/DENTAL EXPENSES: For 2015 (research 2016) in order to itemize, those expenses must be at/over 10% of your Adjusted Gross Income. If you reach this threshold – MAN you’ve had a rough year. I’m sorry. Keep your receipts in the Tax Box. While Quicken or another program can track the expenses, you still need the receipts. Plus, the Tax Box fills in the blanks if you pay with a different method. You can’t itemize Medical/Dental expenses if you have an HSA. That’s OK – always go with an HSA if you can because it’s so hard to reach 10% of AGI.
- TAXES: You typically get tax documents from state and local entities as well as statements regarding real estate taxes paid. However, we keep receipts for anything that may be considered tax in the Tax Box just so we can ask our CPA at the end of the year.
- CHARITABLE CONTRIBUTIONS: Churches and not-for-profits are pretty good about giving you statements for the end of the tax year. However, you want to keep track on your own too. Also, always make sure you get a receipt for non-cash donations made to Goodwill or the Salvation Army. Keep track of what you donated in a spiral bound notebook in the Tax Box. Princess Eldest is usually in charge of this. You can find the values for common donated items here. I’m in charge of the actual valuing.
- CASUALTY OR THEFT LOSSES: Dang, you really have had a bad year. Form 4684 is the form you fill out when something like this happens. You should talk to a tax professional. Grace + Peace.
- UNREIMBURSED EMPLOYEE EXPENSES: Contemporaneous record-keeping is the gold standard here. Keep a mileage log in the Tax Box for anywhere you travel for work beyond your regular commute. There are apps that make this easy such as mileIQ. Also keep receipts for meals, entertainment, and anything else that may qualify under the IRS rules for unreimbursed employee expenses.
- ANYTHING THAT SOUNDS TAXY: We keep every tax form that comes in the mail in January in the box until we feel that we’ve received everything. Sometimes we make notes to ourselves to explain something weird that we did early in the year so that we are reminded of it the following year when we are actually preparing our taxes. Any life change event like a birth, adoption, divorce, or death. Child care receipts, higher-ed expenses and tax prep fee receipts should also go in the Tax Box.
There are scanners and programs that will keep your receipts online, but I’m not that advanced. We do our best to keep everything in one spot and still forget to use the Tax Box sometimes. The truth is: I’m terrified of that guy with his hipster beard in his red, white and blue yoga pants. But, we’re not going to give him our lunch money out of fear – or lack of knowledge. Instead, we’ll keep good records and attempt to mitigate our losses. You may not be able to itemize your deductions or maybe you’ll barely be over the standard deduction. But, you’ll be ready if circumstances change. At least you’ll be in a good position with you records if you are able to itemize. So if he ever comes a knockin’ you can hand over your Tax Box with confidence and say, “Namaste, Uncle Sam. Namaste.”
And Now, Back to the Queen . . .
There you have it . . . challenge number 3. This mission isn’t difficult either but can also make a big difference! Our box was originally a business envelope box but you could use a shoe box or anything else that you have hanging around the house. Yes, that’s it pictured above and it’s been used for YEARS. No need to run out and buy a fancy schmancy organizing box.
Did you see the previous Debt Free Missions? Knock them all out this month!
My book is now available: Slaying the Debt Dragon: How One Family Conquered Their Money Monster and Found an Inspired Happily Ever After. You can also check out Inspiration to Pay Off Debt: 30 Days of Encouragement from the Queen of Free
This post contains an affiliate link. That means when you get a great deal or maybe even something for free, you also help our family pay off our mortgage early. And for that, we royally thank you!
