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Investing Specialists

4 Strategies for an Organized Tax Season

Has tax season become a frustrating paper chase? These tactics can buy you some relief.

Note: This article is part of Morningstar's Tax Relief Week special report.

Getting organized for tax season is top of mind for many investors: tax documents are rolling in, and many of us are determined to make good on the promise of not waiting until the very last moment to file our returns.

True, tax day is still a few weeks away, and you even have a little more breathing room than usual--tax day is April 18 this year. But if history is any guide, it will sneak up in a hurry.

Whether you use tax-preparation software or outsource your tax prep to a CPA, here are some key strategies to ensure a smooth and worry-free tax season.

Strategy 1: Knock off your contributions as soon as possible.
Your deadline for contributing to an IRA or health savings account is the same as your tax-filing deadline. But that doesn't mean you need to wait until you get your taxes in to tackle those tasks. In fact, if you want to deduct your HSA or IRA contribution on your tax return, you'll need to make that contribution before you file your return. Ditto if you're taking advantage of the Saver's Credit

Even if you're not deducting your contribution (you're making a Roth IRA contribution, for example), bear in mind that there's an opportunity cost to waiting until the last minute to make these contributions. And those opportunity costs can add up if you're a serial procrastinator. Assuming you invest in something that goes up more often than it goes down, you'll lower your return by waiting until your tax-filing deadline each year, as discussed here.

Of course, from a practical standpoint, some investors wait to make those contributions because they want to see what their tax bills are first. If that describes your situation, consider signing on for an automatic-investment program for your future IRA contributions so you're not at the mercy of your tax bill each year. For the 2016 and 2017 tax year, investors under age 50 can hit their full $5,500 maximum IRA contribution by putting in $458.33 a month; those over 50 can max out with a $541.66 contribution.

Strategy 2: Use a tax checklist or organizer.
Completing a tax return isn't the annoying part of tax season. Rather, it's assembling all of the documentation you need to file your return. Just as you sit down to work on your taxes in earnest, you realize you need to go chase down yet another missing piece of paper. 

Using some type of a tax checklist or organizer can help you avoid that paper chase and assemble all of the key documents you need in advance; completing your return is then a matter of filling in data. Tax checklists abound online; here's a detailed one with explainers from the excellent blog Don't Mess with Taxes, and here's a more basic one from Turbotax

If you outsource your tax preparation to an accountant, it's a good bet he or she sends you a tax organizer to work from, either paper or digital; such forms often come prepopulated with your tax data from the previous year. Comparing the current tax year's numbers to those of the year prior can be a handy way to track trends in your income, interest earned on your investments, and charitable giving, among other items.

Strategy 3: Hop online for missing documentation.
While some tax forms arrive early in the year, such as W-2s, the deadline for sending out 1099s is a bit later--mid-February and even later for some investment providers. (This article takes a closer look at what you can learn from your 1099s.) If you want to get a jump on your taxes but still don't have all of the documents you need, you may be able to get your mitts on the information you seek by hopping online; firms typically maintain "tax centers" where you can download and/or print out the relevant forms, including 1099s that haven't yet arrived or that you've mislaid.

Strategy 4: Look to outside sources for a deduction paper trail.
If you're aiming to find documentation of your deductible expenses but can't track down all of the receipts you need, don't despair. The previous year's credit card statements, which you can retrieve online can help you identify expenses you incurred over the past year; if your credit card company prepares an annual accounting of your expenditures organized by category, that can provide an invaluable tool to your deductible expenses. (I thought I had been carefully stashing away receipts and acknowledgments of my charitable donations, for example, but I found that my credit card company had documentation that I was missing.) Healthcare providers and pharmacies are also usually happy to prepare a year-end statement documenting your out-of-pocket outlays over the previous year.