Organizing Documents for Tax Season

Many people put off having their tax returns prepared until the April 15 deadline is right around the corner. The cause (well at least one of them) is that they don’t have system for organizing documents. One way to eliminate the stress of tax season is to set up a system to keep your financial documents organized. We’ll cover why it’s crucial to set up systems for organizing documents, how to do it, and how long you should keep these records.

Organizing documents for tax season assists in locating important records, receipts and other documentation. Have you ever noticed how your stress levels increase when are searching high and low for pertinent information to reduce your taxable income. A system of organization will save you time. Another added benefit to keeping these documents organized is that it could save you money, if you have your tax preparer go through your receipts: they may charge a higher fee for their time.
The first and most important tip for organizing documents to designate a home for these records. The most common places to store this information is a filing cabinet or filing box. Use folders for bank and credit card statements, investment accounts and other pertinent tax related information.

File these documents on a regular basis whether it’s daily, weekly or at the bare minimum once a month. Keep an envelope for purchases that may be tax deductible, sort through the receipts weekly and divide them up by category. At the end of the year take these documents and place them into an accordion file. Now that we have discussed the system for organizing documents, let’s move onto how long we should retain these documents.
Past tax returns and related receipts and statements should be kept on file for at least 3 years. Some companies recommend keeping tax return and related documents for at 6-7 years. Speak with your lawyer and accountant to verify what is most suitable in your situation.
Tax season need not be a stressful time when it comes to locating important records. Now that you know why it’s important to organize tax related records, how to set a system for organizing documents, and how long to retain tax returns: you will be able to survive tax season stress-free.