February 2024
Preparing your taxes is easier when you have everything you need at your fingertips or accessible on your computer. Searching for receipts, records, or required documents will quickly erode your resolve and temperament when you’re trying to work through your taxes. Here are a few tips to help you organize your tax documents so you can make the process less stressful and time-consuming.
Create a filing system you will actually use
Filing systems are surprisingly personal things. Just because one system works for someone does not mean it will work for you — and that’s okay. You need to create a filing system that you understand, will utilize throughout the year, and can maintain. You can make it as general or as micro as you need it to be, from a bin or file marked tax documents that you throw in all your receipts, financial statements, and other tax-related documents to separate folders for each type of material. Or, if you prefer a digital system, scan everything you need into files.
“Digitally stored documents are less likely to be lost or destroyed than paper copies stuffed in a file cabinet,” advises Rivan V. Stinson, writer for Kiplinger.com.
Determine what documents to keep for easier prep
Not every piece of paper, document, or receipt is necessarily keepable or applicable to your current tax return. To help not overwhelm your filing system or your space on your computer, you’ll want to sort your documents into categories. Business records that fall into gross receipts like those representing income from your business, business purchases sold to your customers, expenses, travel, transportation, entertainment, gift expenses, assets, and employment taxes are essential documents you’ll need when filing your taxes, according to IRS.gov.
If you’re working on your personal tax return, you’ll want to make sure you have records such as your W-2 and income-related details. TurboTax.intuit.com advises having documents that reflect your investments, charitable donations, health care expenses, your wins and losses if you gambled, and property tax expenditures that include your vehicle ownership on hand. Don’t forget to track deductions that apply to work, volunteering, or medical or business appointments as well as life events such as divorce, marriage, adoption papers, and real estate changes, continues TurboTax.intuit.com.
Review age of documents for streamlined record keeping
Years go by quickly and paperwork tends to multiply exponentially and magically on its own. So, to help minimize the amount of records you keep, be sure to weed out outdated documents and tax returns regularly.
“Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction,” reports the IRS.gov.
Of course, if you’re nervous or unsure about disposing of any document or record, don’t! Seek the advice of a trusted financial advisor. You don’t want to assume something is worthless or unnecessary, when in truth, it is important to your financial records.
With a maintainable filing system, a knowledge of what to keep and how long to keep it, and counsel from a trusted finance expert, organizing your tax documents will be an easier task.