One of the biggest obstacles to organization is paperwork. Bills, mail, schoolwork, and other paper that enter our homes on a daily basis. If you don’t keep on top of it, the paperwork can quickly become a mess!
Here are some ways you can do, so you can organize your tax documents.
Organizing Tax Documents
I start by using a large manila envelope and writing the tax year on the outside. This includes charitable contributions, business receipts and expenses, child care expenses, tax forms, copies of IRA contributions, etc. Anything and everything that may be tax deductible goes into this folder.
Keep three regular size envelopes inside the manila folder: one is for business receipts, another for receipts related to my home office and other related home expenses,
Business and Personal Records Shouldn’t Mix
Keep business and personal expenses separate from each other, as is required by the IRS. They generally both go into the same manila envelope, but keep them separate in the individual envelopes. You can do this with one folder, or multiple folders, whichever is easiest for your situation. Just be sure to keep everything in one place so you don’t have to search for it when next tax season rolls around.
You can use an online accounting system that can help you organize your taxes. There are many options, you can start by using QuickBooks. Or depending on your situation, you may be able to track it with a spreadsheet or a different software program.
Digital Filing System for Tax Documents
Scan copies of all tax paperwork. The IRS accepts scanned copies of tax related papers, so keeping a digital backup is a great idea. This becomes more important if you are ever audited. The digital files go into a filing system organized by tax year. These files synchronized between computers with DropBox, which also backs these files up to the Cloud.
Here is the naming convention you can use to keep track of everything:
- Example: 2015_1098_Mortgage_Interest.pdf
- Example: 2015_1099_INT_Insert_Bank_Name.pdf
- Example: 2015_W_2_Ryan_Business.pdf
- Example: 2015_W_2_Ryan_ANG.pdf
Other Methods for Organizing Tax Papers
Many people are going all digital, which can also be a time saver, provided you use a robust online service, or you maintain backups of your files. Some examples include scanning your documents and maintaining an online backup system, using DropBox, Microsoft One Drive, Google Drive, or a similar system. You can also attach receipts to expenses in QuickBooks or QuickBooks Online.
Shoeboxed is another online company that offers a solution for tax documents and small businesses. Shoeboxed is an excellent tool for small business owners, freelancers, contractors, and those in similar lines of work. It’s a fairly powerful tool that can scan your documents right into QuickBooks.
Which Tax Documents Should You Keep?
Everyone has a different situation when it comes to deciding which paperwork you need when you file your taxes.
At a minimum, keep everything related to business income or expenses, all tax-related documents, including IRS correspondence and tax returns, and anything else that may apply. Other common papers that everyone should keep include:
- Charitable contributions
- All tax forms and IRS correspondence, such as W-2’s, Form 1095 (proof of health insurance), 1099s, 1098s, 5498 (IRA contribution), HSA contributions, etc.
- Taxes paid
- Mortgage interest paid
- Qualified business expenses
- Receipts for qualified deductions
- Purchase or sale of investments
The list of deductible items is quite extensive, and not something we can list here. These pages list more examples:
- Itemized Deductions (IRS).
- Tax Credits & Deductions (IRS).
- Examples of expenses you can and cannot deduct.
The good news is most tax software such as TurboTax and H&R Block @ Home will walk you through a series of questions designed to help you identify which tax deductions you are eligible to receive. So if you do your own taxes, it’s generally best to use a software program to help avoid errors of omission. If you don’t prepare your own taxes, then a good accountant should be able to help you identify tax deductions.
How Long Should You Keep Documents?
Most sources recommend keeping your tax papers for the last 7 years, which is generally how far back the IRS will go if you are audited. That said, they may be able to go further back if they suspect there is fraud. Just keep everything since I have most of it scanned in digital format and digital storage is inexpensive. Also keep the physical documents in banker’s boxes, organized by tax year. Have the large manila envelope from each year containing the documents listed above, and keep another manila envelope with my completed tax return.
There is No One-Size-Fits-All Solution
Every situation is different. Hopefully yours is less-complicated than mine. My hope is this points you in the right direction to get your tax documents organized. When in doubt, save the papers – it’s better to have a copy of your documents and not need it later than to need it and not have it. And definitely keep everything in one place. Use a manila envelope, a shoebox, a folder, or other means of keeping everything in one place. It will make your life much easier when tax time rolls around next season!
Original Article by The Military Wallet
Elaine Fernando is a Professional Organizer, a member of the National Association of Professional Organizers (NAPO), NAPO- NNJ Northern NJ Chapter and APPO (Association of Personal Photo Organizers). Elaine may be reached at 908-630-8995 or firstname.lastname@example.org