How To Organize Your Tax Paperwork

by Lance

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Filing your taxes each year is not always an easy task, especially since you spent the last 365 days saving receipts, paperwork, and other tax-related documentation. Tax time comes around before many people are prepared, leaving many to scramble for the appropriate documents and paperwork. Misplacing the important items you need for taxes can also cost you valuable tax deductions as well.  Learning how to organize your tax paperwork can save time and stress during tax time.

If you thinking about buying tax preparation software then consider software programs such as TurboTax.

Developing a system for storing your documents year-round can be accomplished by starting out on the right foot this year when you prepare for your taxes.   Whether you plan to use tax software or do the forms by hand or if you are deciding between efiling or mailing your tax forms – here is a simple guideline you can use to keep all your information ready and allow you to prepare more accurate tax forms. You’ll need three manila folders or an accordion-type folder with at least three pockets.

Preparation File #1 INCOME

Gather all of the documents that shows proof of income to the IRS so you’ll need your salary documents like a W-2 or 1099. You will also need to account for any other proof of income documents from other sources like gambling wins, freelance work, jury duty pay, and transactions from investments.

For next year: In this first folder, you will save throughout the year any record of money you earned. Whether it be from salary, bonuses, dividends, interest earned, you’ll need to keep a record of what you have made.

Preparation File #2 EXPENSES/DEDUCTIONS

Check with the federal and state tax deduction allowances to see where you qualify. If you use an accountant, request a list of deductions that you are eligible to receive and include the documentation in this folder.  Keep up with any new tax changes or new tax deductions.

For next year: You’ll need to retain any and all expense receipts that are deductible for your taxes. You may need a divided folder to sort individual receipts into categories, especially if it is for a business. Save documentation for the year that entails what you spent on things like utilities, medical expenses, travel expenses, charitable donations, and child care costs. Mark a notation on each receipt as you file them about what category they apply to and what was the purpose of the expense.

Preparation Folder #3 INVESTMENTS

You will need to collect all paperwork and statements related to your investment activity such as purchases, loss, dividends, sales, interest, stocks and the related 1099’s.

For next year: Don’t rely on just annual statements as enough documentation. Save all quarterly and monthly statements too. Any related receipts, sales confirmations, or dividend notices should also be filed in this folder.

As the year progresses, it should get easier to make organizing your financial documents a regular habit. The folders can also be implemented with a check list that you can use as a reference to ensure you have everything you need at tax time. Keep files or envelopes in your car, briefcase or at the office so when you are away from home saving paperwork is still easy. Always remember to ask for and collect receipts, even for the minor expenses. Over the course of a year those little expenses can add up to big deductions.

More resources

Income tax software – online version or download desktop version?

How to handle losing your W2 form.

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Welcome to Money Smarts! If you're new here, please read the "About" page to find out more about this site. If you would like to receive updates by email then sign up here or you can subscribe to the RSS feed. Thanks for visiting!

{ 1 comment… read it below or add one }

1 Adam@RabbitFunds

Nice post. I was actually supposed to meet with our accountant tomorrow (02/17) but had to postpone since I don’t have all of our documents organized yet. Meaning, I’m not sure if we have everything to take to the accountant yet. Unfortunately, I couldn’t get in before 03/09. So our refund will be delayed by almost a month since I’m not organized. I’m usually pretty good about this, but the last few months have been hectic.

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