by Casia Chappell, CFP®, CPWA®
Vice President
Wealth Planning and Portfolio Management
With a complex and ever-changing tax and financial landscape, individuals and businesses rely heavily on the expertise of tax professionals, including Certified Public Accountants and Enrolled Agents, to manage their financial affairs, ensure compliance with tax laws and make informed financial decisions. Creating and maintaining a well-organized system for managing documents and information will improve the experience and efficiency when working with tax professionals.
The Significance of Document Organization
Effective document organization is the cornerstone of a successful partnership between clients and their tax professionals. Properly organized documents facilitate clear communication, can reduce the risk of errors and help ensure that all necessary financial information is readily available. Below are some of the key benefits of keeping your documents in an orderly manner:
1. Accuracy and Compliance: Accurate financial records and compliance with tax regulations are paramount. Properly arranged documents help tax professionals identify potential issues, minimize errors and file correct tax returns on time.
2. Efficiency: Even more so now than in previous years, tax professionals are often swamped with numerous clients and tight deadlines. An organized client can streamline the process, enabling their tax professional to work more efficiently and devote more time to value-added tasks.
3. Cost-Effective: Disorganized information may lead to additional billable hours as tax professionals struggle to locate and verify documents. Proper organization saves both time and money in the long run.
4. Risk Mitigation: Incomplete or disorganized financial records can expose clients to financial risks, including audits and penalties. Organized documentation can help mitigate these risks.
Effective Document Organization Strategies
Here are some practical strategies to organize your documents to work more efficiently with your tax professional:
1. Digitization: Embrace digital document management. Scan paper documents and store them securely on a cloud-based platform or a dedicated computer folder. Use a consistent file naming convention that clearly describes the document's content and date.
2. Create a Document Hierarchy: Organize digital documents in a logical folder structure. Create top-level folders for each tax year or financial period and subfolders for various categories (e.g., income, expenses, deductions). Consistency in naming and categorization is essential.
3. Explore Document Management Software: Those with complex financial lives, including business owners and investors with multiple real estate holdings or LLCs, may find document management software designed for finance and accounting purposes helpful.
4. Security and Back Up: Protect your sensitive and personal financial information by using strong and unique passwords and encryption for digital files. Regularly change passwords and back up your documents to prevent data loss in case of hardware failure or cyberattacks.
5. Maintain a Document Index: Create an index or spreadsheet that lists all the documents in your system, their location, and a brief description. This index can serve as a quick reference for both you and your tax professional.
6. Establish a Routine: Set aside dedicated time on a regular basis to organize and update your financial documents. Consistency is key to maintaining an efficient system.
7. Separate Personal and Business Finances: If you are a business owner or have both personal and business finances, keep them separate. Maintain separate folders and accounts to prevent confusion and ensure accurate reporting.
8. Clear Communication: Establish clear communication channels with your tax professional and other professional partners including portfolio managers, attorneys, and bookkeepers. Inform them of any significant changes in your financial situation promptly. Share access to your digital document repository if applicable.
9. Dispose of Unnecessary Documents Securely: Regularly review your documents and securely dispose of any outdated or unnecessary records according to a retention schedule approved by your tax professional. Shred physical documents containing sensitive information and delete digital files securely.
10. Secure Collaboration: Use secure methods like password-protected files or encrypted and secure email attachments when sharing documents or sensitive personal and financial information with your tax or financial professionals.
Efficient document organization is fundamental to a successful collaboration with tax professionals. It not only saves time and money but also improves accuracy, compliance, and risk mitigation. By reviewing your previous years’ return as a guide to ensure that you have all the necessary information and documentation, you will likely reduce the number of billable hours spent by your tax professional identifying missing pieces.
Moreover, maintaining a routine, separating personal and business finances and fostering clear communication with your tax professional enhances the effectiveness of your document organization efforts. In an era where financial information is constantly changing and subject to evolving regulations, an organized approach to document management is the key to a productive and harmonious relationship with your tax professional.
Your portfolio manager and wealth planning team are available for support as you navigate your organization process. We also understand life can get busy or it might be overwhelming to undertake mass document organization. Our private family office, Octavia Group, specializes in document organization, as well as other personalized services that make clients’ lives easier. If you are interested in Ferguson Wellman’s family service offerings, please reach out to your portfolio manager for more information.
Ferguson Wellman, Octavia Group and West Bearing do not provide tax, legal, insurance or medical advice. This material has been prepared for general educational and informational purposes only and not as a substitute for qualified counsel. You should consult qualified professionals to understand how this information may, or may not, apply specifically to you.