As the new year gets started are you finding yourself buried under a mountain of paperwork and tasks? Two critical areas that often get pushed aside until the last minute are taxes and estate planning. But if you want to save time, money, and stress — you need to take a proactive approach. Being organized with your taxes and estate planning records will pay off for you and your loved ones.
In this blog, I’m going to give you a step-by-step guide to tackle both your personal and financial legacy effectively.
Step 1: Gather Your Tax Documents
There are key documents that you need to collect to prepare for tax season. When you stay organized, it can make the filing process smoother and help you avoid costly mistakes.
Here’s the list of some key documents you need to collect:
- Income Statements: W2’s for salary employees or 1099s for freelancers
- Expense records: Receipts for deductible expenses, like business costs and charitable donations
- Investments and Savings Documents: Summaries of gains, losses, or distributions from brokerage or retirement accounts
- Property Tax and Mortgage Interest Statements: Potentially deductible items.
Pro-tip: Create a dedicated place, such as a folder, box, or drawer, to drop the documents in as they arrive. This will help prevent last minute scrambling!
Step 2: Review Last Year’s Tax Return
Having last year’s tax return handy is a smart move. It can remind you of any carryover deductions, such as charitable contributions or business losses. It’s also an excellent reference to ensure consistency in your filing.
Step 3: Update Your Estate Plan to Reflect Changes in your Financial Picture
When you’re organizing your tax paperwork, it’s also a good time to think about updating your estate planning documents. Have you had any major life changes? If you’ve gotten married, divorced, had a new baby, or lost a loved one, or if your financial picture has changed — then you’ll need to update your wills, trusts, and beneficiary designations.
Essential Documents to Review:
- Will or Trust: Make sure your asset distribution and guardianship align with your wishes.
- Power of Attorney: Verify the person that you have chosen is still appropriate.
- Healthcare Directives: Your wishes regarding medical care and end-of-life decisions need to be clearly outlined.
- Beneficiary Designations: The beneficiaries that are on your insurance policies, retirement accounts, and payable-on-death accounts should be updated.
Pro-tip: Schedule a meeting with your estate attorney every three to five years, or when those milestone changes occur to review and revise your documents.
Step 4: Align Your Financial and Estate Plans
Your financial plans and estate plans should work together seamlessly. If there’s any discrepancies between the two, it can create complications down the road. One thing that helps is creating an asset inventory.
List your assets, including:
- Real estate holdings
- Bank accounts
- Retirement accounts
- Investment portfolios
- Personal valuables (such as art, collectibles, jewelry)
By doing this, you’ll simplify tax filing and guarantee your estate plan is covering all of your assets.
Trust Funding: Do you have a trust established? If so, be sure that all appropriate assets are titled in its name. If you don’t do this, your trust may not provide all the benefits you hoped for, like by-passing probate.
Step 5: Leverage Digital Tools
Use technology to your advantage — it can be your best friend when it comes to getting organized! You can streamline record-keeping, and make things much easier when it comes to accessing important documents. Apps like Evernote or Google Drive can store digital copies of your documents, making them accessible anytime, anywhere. Also, your attorney or financial advisor may provide secure document storage as part of their services.
Step 6: Work with Professionals
Both tax preparation and estate planning can be complicated, especially if you have multiple income streams or significant assets. Working with professionals can guarantee accuracy and give you more peace of mind.
Professionals that you can work with:
Accountant or Tax Advisor: An accountant can help you maximize deductions, navigate complex tax laws, and file taxes accurately and on time.
Estate Planning Attorney (like me!) : Having an attorney ensures your documents are legally binding and reflect your current wishes. Plus, they’ll help you plan in advance for things like minimizing estate taxes or setting up a trust.
Financial Advisor: A financial advisor can provide you with insights into how your investments and savings align with your tax and estate planning goals.
Step 7: Schedule Annual Reviews
Unfortunately, getting organized isn’t a one-and-done task. Choosing a yearly date to review your tax documents and estate plan helps you keep your plans aligned with your goals..
What should you review annually? I’ve made you a list below:
- Changes in income or expenses
- New investments or property purchases
- Family dynamics change
- Talk to your advisors about any legal changes that may affect you and your plans.
Step 8: Communicate with Your Family
Estate planning is deeply personal, but it’s essential to share key details with your loved ones. For example, those important documents you have? Let your family know exactly where they can find them. Has an emergency come up? Be sure your family knows who you want contacted.
Another easy way to communicate with your family is by creating an emergency binder. Inside the binder, you should include:
- Copies of your will, trust, and power of attorney documents
- Financial account information
- Contact information for your attorney and accountant
Step 9: Take Advantage of Tax-Advantaged Accounts
As you organize your finances, look for ways to maximize tax savings.
Opportunities for savings include:
Retirement Accounts: Contribute to IRAs or 401(k)s to help reduce taxable income.
Health Savings Accounts (HSAs): Contributions lower your taxable income, and funds used for medical expenses can be withdrawn without paying taxes.
529 Plans: These accounts offer tax advantages for education savings.
Step 10: Stay Informed About Tax and Estate Laws
Tax and estate laws are subject to change, and staying informed can help you make the most of your financial strategies. For example: Be sure to keep an eye on changes in the standard deduction or itemized deductions. You’ll want to have an understanding how updates to estate tax thresholds might impact your planning.
Schroeder Larsen Law Can Help You!
Does all this organizing your taxes and updating your estate plan seem intimidating? Don’t worry, this all may feel like a time consuming task — but the benefits you’ll be getting far outweigh the effort! By taking a proactive approach, you can save money, reduce stress, and make sure your financial and personal legacy is secure.
Schroeder Larsen Law can help guide you through it all — the key is to start early and stay consistent. I truly believe that when you have an organized life, the stress disappears. And that’s a goal worth working towards!
Are you ready to take the next step in organizing your finances and estate? Click the link and schedule a call with me today, let’s get started!