Tax time is here! That means it’s time to get your stuff together, file your tax return and prepare it for storage. If you are not organized, this can be a daunting task, but use it as an opportunity to prepare yourself and make it easier for next years’ filing. The most important thing to do is keep the records you need, and begin shredding the ones you don’t.
How should I organize my tax records?
Starting the year off on the right foot is key. Every January, I start an accordion file. It is labeled with the categories I have deductions for. I deduct business expenses for my husband’s job so I label them the accordion file by category, say “work clothing/tools” or “travel expenses”. You should label your accordion file in the same manner, but customize it to whatever you deduct.
I look through the accordion file every month and write down all my expenses based on the receipts that I have and what I know I spent that can be deducted. I look for any receipts that might be missing at this time. I can easily skip this step and write everything down at the end of the year, but it’s easier to remember if I missed tracking an expense 1 month later, versus trying to remember a missed expense and find the receipt for it one year later. I suggest you do it every month as well, it will save you time in the long run.
I started my accordion file for 2014, but now how do I organize my taxes for 2013?
I’m gonna show you how to do it my way. To start off, I take my accordion file and type out my deductions list. When I file my taxes, this list and the W2 forms is the only thing my accountant gets from me. It makes her job easier and speeds up the filing process.
When I get home, I scan everything and make several stacks with it. I add a “cover page” and label it for each stack. You can get as creative as you want but I keep it simple and just use a white sheet of paper and my own handwriting.
Stack #1 – Label the cover page (YEAR) Income Tax Return, arrange the 1040 and any schedules attached behind it and staple it together. Many times when someone asks to see your tax records, this is all they need.
Stack #2 – Label the cover page (YEAR) W2 Forms and staple all your W2 forms behind it.
Stack # 3 – Label the cover page (YEAR) Income Tax Deductions and Receipts. Remember my typed out deductions list? This is the first thing that goes behind the cover page.
Followed by a few extra pages labeled by deduction category, at 3 categories per page.
I staple each category ‘s stack of receipts behind the blank pages, according to where I labeled it. I promise you, it sounds more complicated than it really is. See the photo below.
As you can see above, the “tools” receipts are stapled exactly behind the word “tools”. Likewise with “clothing” and “rent”. I deduct these things as a business expenses because of the nature of my husband’s job, but you should consult with a tax professional or accountant to figure out what you should be deducting and keeping records of. You can also read more on the topic by clicking around and browsing here: Deducting Business Expenses.
So there you have it folks, the way I keep my taxes organized. Before I do my organizing, I scan everything and keep a digital copy in our safe. I still keep the hard copies for as long as the statute of limitations is alive, then I shred them. In my photos you see 2007’s taxes, but I’ve already shredded that and all the way up to 2009’s taxes. You do not want to become a tax records hoarder, but you also do not want to get rid of your documents too quickly.
How long should I keep my tax records?
As a general rule, keep your tax records and supporting documents for three years following the filing deadlines. Let’s say you file 2013’s income tax on February 19th, 2014, you should keep those records up until April 15th, 2017. You might say, “But why can’t I just shred them in February?”. Honestly, I don’t know, but I go based on the IRS’s rules. (You can read more about it here: How Long Should I Keep Records.)
PLEASE NOTE: There are exceptions to the three year rule, like if the documents are related to properties (monetary or real), or if you need it for any purpose other than taxes. Also, if you file a fraudulent tax return or you don’t file a return at all, you should probably keep your records forever, as Uncle Sam can come knocking at any point in time. I don’t know much about business taxes because I am not a business owner, but if you are, you can find more information on the IRS.gov website or by consulting with a tax professional.
Hope you’ve enjoyed my post and here is a look at what 8 years of tax records looks like in my home. Before I shredded the ones I no longer needed, of course!
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Extra credit: Do you currently organize your tax records, or are they all over the place? How many year’s of taxes are you still keeping that you don’t need? Don’t be shy! I kept 8 years before I realized I could finally shred them! Let me know in the comments below!