Argh! It’s tax time again, but you can make this year’s contact with Uncle Sam less stressful by organizing your tax information. It may take a little time to establish a system but, in the end, you may save yourself time, aggravation and money. TFCU AVP/Manager, Financial Education Program Cynthia Campbell offers these suggestions.
Keep your filing system simple
There is no need to hire a professional organizer or to develop an elaborate filing system. The key to sticking with a process is to make that process simple. First, establish a central location for your records. A locking desk or file cabinet would be a good choice. In regards to computerized records, set up a password protected folder in a dedicated location on your PC. Make frequent backups of your information.
Use a separate labeled folder or envelope for every tax category
Having a folder for each category makes filing the information throughout the year easier and tax preparation much smoother. Hint: check out the return you filed last year, it will tell you what categories you need to establish. Common categories include income information (W-2s, interest income, rental income, alimony, child support, etc.), mortgage (interest) information, student loan (interest) information, medical expenses, educational expenses, charitable donations, investments, bank accounts, and so on.
Designate a place to keep all receipts
As you collect receipts, put them in a particular spot in your wallet or purse. Make it a regular routine to empty the receipts from this spot and store them in the designated receipt place and/or record them in a tax-related spreadsheet or money tracking program.
Make a file folder for each tax year
File each year’s Income Tax Return (a permanent record), along with the tax documentation for that year’s filing (W-2s, 1099s, statements with annual interest charges, Profit & Loss statement or manual account summaries, etc.).
No need to keep everything
It’s a good idea to keep tax returns and all supporting documents for at least seven years. The IRS has three years to charge additional taxes; six years if there is any reason to think you underreported your income by 25 percent or more; however, some experts suggest holding onto the actual returns (not all the supporting documentation) indefinitely because your returns provide a history of your finances and peace of mind! Keep investment records for as long as you hold the investments, plus at least seven years. You need records of your gains or losses. Real estate records, including purchases, renovations and sales, should be kept until you sell the house and deal with any tax consequences.