By the end of last month you should have received all of your tax documents that you’ll need to file your taxes for last year. Hopefully you’ve put them in a safe, easy to remember place (or filed your taxes early) because a lot can happen in a couple of months and if you leave them on your kitchen table or nightstand, they may get misplaced or even thrown out. To keep your personal information private and to keep all of your important documents organized and easy to find, follow these 3 key tips.
Create a Place
The easiest way to keep your important tax documents safe and secure is to put them in a folder, drawer, or binder. Whatever method you use, make a permanent space for it in your home office, family kitchen command center, or bedroom. If you are keeping tax documents for an entire family or for personal accounts as well as your business, you may want to invest in a filing cabinet. You can find a cheap, used filing cabinet at your local thrift store and spray paint it or use tapes and fabrics to give it a makeover. After upcyling your filing cabinet, you can then use hanging files with labels and manila folders to separate and organize your tax documents into three or more piles.
The Three Pile System
While every person’s tax situation is different, the majority of Americans will only need three separate piles or folders to keep their tax documents organized and easy to find:
- Income: payroll stubs, W-2’s, 1099’s, etc.
- Expenses: Tuition expenses, alimony paid, mortgage interest statements, business expenses, etc.
- Investments: deductable investments, nondeductable investments, etc.
You may want to have sub-folders within these main folders for even more organization, but you can also simply put all of your documents into these three main piles. However, if you have dependents, are filing jointly, or own your own business, you may want to have more folders for each person or business. If you have charitable receipts or business expense receipts, you may want a separate folder for those as well. Find a method that works for you and stick with it. Eventually, it will become second nature to file away your tax documents as you receive them so you won’t have to be hunting them down when April comes around.
Know What to Keep and for How Long
Most people will either keep all of their documents for as long as possible or shred everything as soon as they’re done with them. Unfortunately, keeping documents forever only creates clutter while throwing them out or shredding them after a year is far too soon. For tax returns, you need to keep them for about seven years to be on the safe side.