Organize Tax Documents

Once a year when we get ready to file income taxes, we realize how many tax documents we have to gather to properly file our taxes. We come across these tax related documents throughout the year, which we need to preserve for filing taxes in a future time. Although most of the documents such as W-2, 1098, 1099, or 1099-SA come to us toward the end of the year, we accumulate various tax related documents all year long that we’ll need for filing income taxes for the year. Such documents may include charity donation receipts, vehicle license fees, and zoo membership for those of us who have kids.

As we gather and accumulate all types of tax related documents, we must be well organized to make sure we don’t lose track of them and be able to easily locate all of them months later. Organizing documents has two main purposes; first we can save time by locating them quickly when they’re needed, and second, we can be sure that we have all the necessary documents for a complete and accurate filing. One of the added benefits of organizing the documents for tax purposes is that they can come handy for other financial transactions when they’re needed. For example, I have different folders for all categories of documents that I receive in the mail or collect as part of my transactions such as donations or gas receipts. Some of the document categories that I maintain in various, secure and well-marked folders include mortgage statements, bank statements, credit card statements and taxes. Each year, I create a tax folder called (Tax YYYY) in which I place all my tax papers for that year which I then use to properly file my taxes. Once my taxes are filed, I place a copy of the tax return in that folder along with the supporting documents and I start another tax folder for the following year. My other folders are ongoing and never expire or need a replacement folder for the new year. I just need to maintain the ongoing folders to make sure they don’t become useless thick folders but rather very useful when needed with the latest information. For example, when you apply for a new mortgage, you are asked to provide the latest bank statements, which you can easily and quickly provide if you keep track of your statements in an organized manner.

Having the complete tax documents organized in a folder will ensure we file our taxes correctly and based on complete documents thus a) potentially maximizing our refunds, b) minimizing any tax audit possibility because we failed to file taxes correctly or c) passing a tax audit because we are able to provide the supporting documentation.

In conclusion, to get started with organizing your tax documents or any other documents you maintain, buy a secure file cabinet that you can lock and which is preferably fireproof if your budget allows for it, then place well marked folders for your various document categories and start placing your documents in their specific folders as they come in. I usually keep all my documents including the bills I get in the mail in my briefcase and about once a week, I would place them in their respective folders after I pay the bills. I also continuously maintain the folders by throwing away old and unneeded documents from time to time. It’s not a time consuming effort although we might put off document organizing once in a while but it’s a task that can save us a lot of time at the end. Organizing the tax documents we start receiving almost daily at the end of each year is especially a very important task for making sure our taxes are properly filed.

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