Keep your tax documents organized

1040 FormWhen it comes to clutter, the federal government has all of us beat. The tax code alone is over 60,000 pages and continues to grow by leaps and bounds. I’m not going to even begin to tell you how to do your taxes. There are professionals who, fortunately for us and unfortunately for them, dedicate their lives to filing taxes.

If you are single and have little to report on your taxes other than a W-2, you can easily use e-File. Unfortunately, I don’t have that luxury. If you’re not in that category, you can purchase a program like Turbo Tax, in hard copy or by download, and take the time to do them yourself. Personally, I prefer to use an accountant.

Your tax documents currently should be trickling in from your employers and investments. My wife and I put our tax documents into a marked file folder with a checklist of everything we expect to receive. (Each of our W-2s, our home mortgage interest document, savings interest, etc.) Once we receive all of our documents, we makes photocopies of all of them. The photocopies can be a life saver, the way they were for us a couple years ago when our car was stolen with our tax documents inside of it.

These are just a few tips that may make your tax preparation a little less hectic. Try and get everything in order in a timely manner, and you may just get through another tax season with a little less anxiety.

16 Comments for “Keep your tax documents organized”

  1. posted by Jeff on

    I have a dedicated bin that I take out this time of year. It goes right beside the door. As the papers come in I scan them and save them on my computer. At the end of every tax season I make a CD with pdf’s of all of my tax documentation. The originals go into a good container and are sent to storage.

    I live in a small one bedroom apartment and saving space is a MUST, make “soft” copies of everything really cuts down on the amount of filing space one needs.

  2. posted by anonymous on

    one question regarding filefolders in general: i love hanging folders, but david allen says “avoid them if possible” and i don’t understand why. what’s so bad about hanging folders?

  3. posted by forvrin on

    I try and scan everything in and then make multiple redundant backups of them.

  4. posted by Stephen on

    I scan all mine to PDF and back them up. I hate having paper laying around. I know people will say you need paper copies for X, Y and Z reason but I just do not want to keep anymore around than I have too. Plus its 100x easier to drop them to PDF, but them up online to secure storage and burn them to DVD and put that in the safe deposit box.

  5. Profile photo of Erin Doland

    posted by Erin Doland on

    I agree with scanning and keeping a digital copy instead of a physical one. Both options are good ones.

  6. posted by Liza Lee Miller on

    Also, make sure that you save a copy of your canceled check to file away with your copy of the return (or a pdf of it to store away with the e-copies of your tax paperwork). It can be a life saver if the tax board or IRS decides to make you prove you really did pay taxes in 1994 — as we are currently having to do. Sigh. While we don’t get cancelled checks anymore, we do get online copies from our bank to print out — we’ll be doing that for future years and we’re going back as far as the bank will let us to order copies of those checks we submitted to the irs and the state tax board. Better safe than sorry!

  7. posted by Brad on

    If you are a Mac user you should take a look at Yep (http://www.yepthat.com). It’s like iTunes for documents, you scan everything in as a PDF and then tag it for future reference. I try to keep my physical file folder as organized as possible but nothing beats Yep for being able to find things quickly when you need them.

  8. posted by anon on

    There may be legal reasons why you need to keep the original paper copies of some documents, rather than just scans.

    However, more and more documents are becoming available electronically. I don’t know if this is legal in the US (I’m Canadian), but tax slips from at least banks and universities are starting to be available electronically. However, if you pick that option, you have to make sure that you go in and download the slips to use with everything else.

  9. posted by Chris on

    Liza,

    I thought audits were limited to 7 years back, how is the IRS putting the onus on you to prove you paid taxes almost 14 years ago?

  10. posted by Nat on

    One word of warning: If you use Turbo Tax and are saving your old returns in the turbo tax file format, make sure you save the version of the turbo tax software for that year as well. Turbo tax 2007 will read the 2006 files in order to extract needed past year information for the 2007 form but is unable to completely recreate the 2006 form. Much safer to archive as .pdf.

  11. posted by Daniel on

    “One question regarding file folders in general: I love hanging folders, but David Allen says ‘avoid them if possible’ and I don’t understand why. What’s so bad about hanging folders?”

    It’s simple: hanging files take 3x as longer to create than simple manila folders (mostly due to the nature of the labels). Also, you can’t grab a hanging file and go–the metal parts stick out and snag and look ugly. So you always have to use hanging folders *plus* manila folders inside. Allen’s suggestion is that if you’re more comfortable with hanging folders, go ahead and use them, but only put one manila folder in each hanging folder, and don’t bother labeling the hanging folder (unless you really really want to).

    If it’s a time-consuming pain to create a new folder, you will resist creating a folder for that single piece of paper that really deserves one. (For example, the first W-2 you receive deserves a folder, because more will probably be coming.)

    Besides, any good filing cabinet comes with a sliding support at the back of each drawer that will work just fine for keeping manila folders standing.

    As for paying taxes, am I alone in my (overly stubborn) belief that I should not have to pay money to file my taxes? If the tax system is too convoluted for the average citizen to pay taxes, there is an unforgivable problem with the tax-collection system.

    Besides, no one has to read the 600+ page tax code. The IRS makes all the information available on its website in human-readable publications available as free pdfs. You (and/or your spouse, if applicable) have to decide whether or not you are going to itemize or take the standard deduction. If you choose the latter, taxes are a piece of cake to do by hand with a calculator. If you choose deductions–well, you have to gather and organize all the supporting documents anyhow (unless you want to get charged an arm and a leg for making your accountant sort through it all). So you may as well set aside a few hours to plug and chug the numbers.

    Besides, doing your own taxes forces you to take a close look at your finances for the past year. That’s a good thing.

  12. posted by Gillian on

    It seems to me that if your only copy of a return is the one in the tax application, the tax department is not going to accept it since it could have been modified after you filed. Therefore what does it matter if you can’t open an old return?

  13. posted by Robin M. on

    The second best thing about financial aid for tuition is that you get your taxes done really early in order to apply each year. Sometimes even before all the end of year statements have arrived from all our financial institutions. This year I was able to access all the necessary data on our mortgage, interest statements, etc. online, by the 14th of January. Which means that I don’t have to save as many redundant copies for myself.

  14. posted by Jeff on

    Daniel,

    You are not alone in your belief about taxes being too complicated. The other day I left a comment/rant on Get Rich Slowly saying essentially the same thing. But I feel that most people have bought into the notion that taxes have to be complicated, and since their software/accountant tells them they saved more money than the cost of tax prepration, they think they came out ahead. As long as people keep thinking like that, our system will keep getting more and more complicated.

  15. posted by Harris on

    What is the proper amount of time to keep tax returns? 7 years? How far back can the IRS audit you?

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