setting up a filing system

Keeping Your Tax Docs Organized

It is time to file your tax return, and you find yourself in a mess trying to organize the past 12 months of your life an hour before your tax appointment. If you need to itemize your deductions, you'll be tracking down receipts, digging up the paperwork to deduct the cost of your vehicle's oil change and trying to figure out remembering where you donated your old car and that tower PC you found in the atic. The solution: Start organizing your documents ahead of time to make filing your taxes a smooth and easy process.


​Tax season doesn't have to be an annual source of stress. The key to tax season success (and sanity) lies in implementing a system that makes tracking your expenses more like a daily habit than a chore. Creating a process and sticking with it throughout the year will mean less time digging for paperwork when April rolls around and less worry that you're  missing any important deductions, credits or other tax breaks. Save money, save time and save yourself a headache with these simple organization tips.

What Documents Can I Expect to Receive?

Tax documents vary depending on your occupation. At right is a list of standard documents you can expect to receive during tax season, as well as miscellaneous documents you season, will want to save throughout the year. These are especially important if you are an independent consultant, contractor or freelancer.

Standard· tax documents you'll receive from employers and financial institutions:
  • W-2 (Wages from employment) 1098 (Student loans, mortgage interest)
  • 1099-MISC (Non-employee compensation)
  • 1099-INT (Interest income from savings accounts)
  • 1099-DIV (Investment income, such as dividends and capital gains)
Other documents you'll need to track yourself:
  • ​Charitable donation receipts
  • Childcare and education costs
  • Medical receipts
  • Contributions to tax-deferred retirement accounts (401(k), IRA)
  • Volunteer timecards
  • Business expense receipts: meals, equipment, supplies, mileage, utilities, advertising
  • Receipts for tax-deductible home improvements, such as energy efficiency upgrades
  •  Real estate tax and personal property tax documents
How To Organize These Documents?

If you plan to itemize deductions on your tax return, the onus is on you to keep good records to prove your expenses. One of the most important things you can do is to save and organize all related receipts throughout the year. You can get creative with how you choose to store and classify your documents, but the underlying goal is to keep the process simple enough that you'll follow it on a regular basis. The result: a more organized tax-filing process-with fewer surprises.

To get started, create designated storage spaces in your car, home and office, so you can file receipts as you spend money. Something as simple as a manila envelope, pocket folder or shoe box for the car and an accordion folder or filing cabinet at home is effective. Place documents into their respective places upon leaving the store, then transfer them to the larger storage system at home on either a weekly or monthly basis, whatever suits your schedule.

Make a habit of labeling each receipt so you can remember the nature of the expense. Categories to consider:

  • Gas and tolls
  • Donations
  • Home expenses
  • Childcare costs
  • Legal and professional fees
  • Medical expenses Office supplies
  • Travel
  • Utilities

Also make room for the standard tax documents that begin to show up in your mail in January. Either add a separate folder for them or store them in a section of the current system that you label "Tax Documents.".

If you're always on the go and want to store receipts digitally, consider software or smartphone apps that allow you to snap a picture and upload or email a receipt to yourself. Don't toss those paper receipts, though. Having the document in both Physical and digital storage increases safety and accuracy at tax time.

“Consider using an app like Shoeboxed, Expensify or Genius Scan to capture paper receipts when you're on the move.”

HOW LONG TO KEEP YOUR FILES

​A list of documents to keep and when it's safe to get rid of them.

​There are very good reasons to keep certain tax files: You may need to amend your return or maybe even gulp face an audit by the IRS. But how long should you keep those receipts, W-2s and other tax documents? Here are some general guidelines for how long to save your files.

The Three-Year Rule

In typical filing situations, the IRS has three years to audit your return, which means you should keep your records stored for three years from the date you filed or the due date of the return-whichever is later. For example, if your tax return is due April 15, but you file early, the statute runs exactly three years after the due date. If you file late and do not have an extension, the statute of limitation applies to the three years following your filing date. You also have three years from the date you filed, or two years from the date you paid the tax, to file any additional claims or refunds. Note that filing an amended claim doesn't restart the three-year statute of limitations.

What Documents Do I Need to Keep?

Generally, you should keep all records that support your taxable income, a deduction or a credit shown on your tax return for three years.

​Income​

  • ​W-2​​​
  • 1099
  • Bank and brokerage statements
  • Interest and dividents

​Expenses and Deductions

  • ​​​​Receipts for business expenses such as mileage, supplies, utilities, advertising, meals, etc.
  • Childcare and education costs
  • Charitable donation receipts
  • Medical receipts
  • Contributions to tax-deferred retirement accounts (401(k), IRA)

​Home

  • ​Closing statements
  • Purchase and sales invoices
  • Home buyer and homeowner tax credits
  • Personal property and real estate taxes
  • ​​​
Exceptions
  • If you under-report your income by more than 25 percent, the period of limitations is doubled: The IRS has six years to decide whether to audit your return.
  • If you file a claim for a loss of worthless securities or a bad debt deduction (a debt that becomes noncollectable), you must keep records for seven years.
  • If you file a fraudulent return or don't file one at all (not recommended), the statute of limitations never expires and you will need to keep records indefinitely should the IRS decide to investigate.

​Storage

​Use the storage system that works best for you, if it it allows you to produce the material in case the IRS decides to audit. Once the statute of limitations has passed, confirm that you do not need to keep your records for other purposes; certain creditors and even some insurance companies may require you to keep records longer than the IRS does. When it's finally time to let go of most documents and receipts, always keep the tax return to consult when filing future returns. Home-buyer and homeowner tax credits Personal property and real estate taxes.

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