[VIDEO] Organizing Your Tax Records
Preparing for taxes may seem daunting, but if you keep your supporting documents organized throughout the year, completing your return goes much easier and faster.
Following these three principals can make tax time less stressful:
1. Gather your tax records all year.
As you accumulate various forms, receipts and financial reports from banks, investments and lenders, keep them separated by category so you can find information easily.
2. Group records by how you file.
Use your previous year’s return as an aid to creating your categories for current year tax paperwork. Most documents will fall under one of three categories, which are income, deductions and exemptions:
• Types of income include:
o Wages, salary, tips, bonuses
o Investment income
o Interest income
o Social Security benefits
o IRA and Pension distributions
o Unemployment benefits
o Rental income
• Common deductions are:
o Mortgage Interest
o Real estate taxes paid
o Property taxes paid
• Important exemptions to keep track of are:
o Earned income credit
o Education expenses
o Child care expenses
o Charitable contributions
o Contributions to IRAs
3. Keep the file for seven years.
You are required to keep tax returns forever – there is no statute of limitations on how far back the IRS can ask you to prove that you filed a return. So make sure you have your returns stored together, separate from the supporting documents.
Generally speaking, you should hang onto supporting documents for 7 years in case of an audit. Store your archived paperwork labeled with the year, contents and destruction date. Then when you add the new year’s tax records, the oldest can be shredded.
Keeping your tax paperwork organized throughout the year will help you prepare your taxes in less time, and you’ll feel confident that you have the documentation to support your return if you were to get audited.
Watch on Smead YouTube Channel: Organizing Your Tax Records