Wondering how to organize tax documents to make filling out your returns easier? Don’t despair, it’s not as scary as you think. Plus, with a very minimum amount of effort, you can get a jump-start on incoming documents to make next years’ taxes easier to prepare, too.
What You’ll Need:
- Your big, scary pile of documents.
- 20-24 manila envelopes (not folders)
- A black, permanent marker
How To Organize Tax Documents
- Clear a 4×6 foot space, or larger, on your floor.
- Using the black permanent marker, label 10-12 manila envelopes with the names of the categories below.
- Repeat with the next 10-12 manila envelopes using the same category names.
- Arrange the first set of labeled envelopes in a grid, leaving room between the rows for the second set of envelopes.
- Place the second set of envelopes, labeled-side up, in rows immediately beneath the first set.
- Now, sort through your big pile of jumbled papers and place them on top of the envelope bearing the appropriate category label. Leave the top row of each envelope clear so you know where the papers should go.
- When all of your papers are sorted, tuck them into an envelope and set aside until you’re ready to prepare your tax return.
- Use the second, empty set of envelopes to organize this year’s documents on a monthly basis and you won’t have any reason for panic next year.
- Income: Pay stubs, W-2s, 1099s, interest statements, dividend statements. Also include jury duty pay.
- Medical expenses: Receipts from doctors, dentists, hospitals, labs, pharmacies, vision centers, etc. Also receipts for any payments made to purchase health, dental, and vision insurance.
- Charitable donations: Include receipts for cash donations, as well as donated items (clothes, toys, cars, etc.).
- Real estate papers: Year-end mortgage interest statements, real estate tax documents, home owner’s insurance receipts, and other paperwork associated with casualty losses to your home. If you made home improvements, include their receipts here. They may/may not be tax deductible (talk to your financial advisor), but at least you’ll know where they are.
- Property and sales tax papers: Receipts for paying taxes on cars and other vehicles subject to personal property tax. Also, sales receipts for big-ticket items.
- Child Care payments In addition to receipts for payments to daycare or sitters, be sure you have a paperwork with your babysitter’s contact information and Social Security number if you paid him/her to watch your child while you worked or looked for work.
- Student loan payments: Any papers related to payments made and interest charged.
- Work-related expenses: Receipts for work-related expenses not reimbursed by your employer (e.g., work-related educational expenses, receipts for union dues, professional license renewal fees, tools or supplies required for your job, etc.)
- Self-employment expense receipts (if applicable): Receipts for advertising, office supplies and cleaning, office repairs, etc.
- Utility bills for home-office deduction (if applicable): If you qualify for a home-office deduction, you’ll need your home’s utility bills to calculate the amount deductible from your taxes.
Bonus tip: Make it easier to keep up with filing your paperwork by taping a manila envelope inside a cupboard door in your kitchen, or wherever you sit to pay bills. As you make payments on deductible items, write the check number, date and amount on the bill and stick it in the envelope. Also include receipts for charitable donations, etc. Once a month, take the envelope down and file it in the extra envelopes you made following the steps above. It will only take you 10-15 minutes a month, and will pay off by making next year’s tax filing much less stressful.