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Organizing Tax Documents

The time to organize your tax records is now. Informational tax information is hitting your regular and digital mailboxes from now until late March. To make matters worse, this year there are economic recovery payments, unemployment benefits, and advance child tax payment records to organize!

Here are some tips to get on top of your tax records.

Organizational Strategies for Tax Documents

If you have not already done so, create a folder for the current year’s files. Here are some filing suggestions.

  • Tax return and support. Create a file with copies of your signed tax return(s) for the year. Include any support documents provided with your filed tax return.

  • Files in tax return order.Create annual files to match the flow of your 1040 tax return. Here are some suggestions.

    • Income. Copies of W-2s, 1099s, Social Security statements, interest income, K-1s, and investment activity go in this file.

    • Charitable Donations. Create a separate file for cash donations and one for non-cash donations. Include a copy of your charitable mileage log in this file.

    • Medical and Dental. Create a file for all your medical related expenses. Include a copy of your medical related mileage log in this file.

    • Other itemized deduction file. In this file include all other proof of itemized deductions. This includes property tax statements, mortgage interest, and state income tax documentation.

    • Business activity. Have a file for each hobby and business activity. Include a copy of your business mileage log in this file.

    • Education. Create a file for all documents related to educational expenses. Include in it copies of invoices, tuition and fees. Include invoices for music lessons, instruments and any materials required to purchase for your student.

    • Other. Put all your miscellaneous receipts into this file. This includes any payments received from the government due to COVID or the new advanced child tax credit. But also save any documents you are unsure about like receipts for daycare, Form 1095s and any other tax related items.

  • Statement file. Sort all your financial statements by vendor, then by month. Create a separate file for these statements. This can include bank statements, credit card statements, and investment account statements. Consider creating a digital back up copy of these statements and store them on a CD or USB drive.

The Digital Alternative

If more of your records are in digital format, consider creating a tax folder for each year on your computer and then place your digital records into sub-folders using the same sort as noted above. Create password protection for each folder.

Rotation idea

Finally, at the end of each tax year place a note on the tax return to confirm the date your tax return was sent into the federal and/or state government. Note on the outside of this file when you can toss the support documentation. While you keep the tax return indefinately, most documentation is safe to shred after 3 1/2 years. But do not take this action unless you are certain of the length of time you will need to save these records.

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