Time to read:4 minutes
The first year my blog earnings passed the “hobby” level and turned into an actual income I had no idea how to organize tax documents.
I was running a personal blog back then and counted myself fortunate if a dozen people read it in a week. With no income, there was no requirement to file as a business, so if I saved receipts, it was only for my records. A shoebox was good enough for that purpose and served me well for several.
Then I started this blog and wrote a few books, and before long I was earning a full-time income and had the expenses to show it.
That first year it took me over a week to organize my tax documents and fill out my return, a miserable process that I swore I wasn’t going to put myself through again. Of course, I couldn’t get out of filing taxes, but I could certainly make filing season easier by learning how to organize tax documents throughout the year rather than leaving them all until mid-April.
Whether you’re a blogger or not, learning how to organize tax documents can help make filling out your returns easier, too. Don’t despair; it’s not as scary as you think!
How To Organize Tax Documents
What You’ll Need:
- Your big, scary pile of documents.
- 20-24 manila envelopes (not folders)
- A black, permanent marker
Spread Out On The Floor
Trust me on this. I first attempted to organize all of my documents on my desk then quickly ran out of space. After gathering everything up into a pile, I schlepped it all to the kitchen table and started over. It wasn’t long before I ran out of room there, too.
Finally, I decided to plop myself down in the middle of my home office and spread everything around me in a circle. Not only did I have enough room but I also gave myself an incentive to stick with the task and finish it in one day because, otherwise, my cats or kids would no doubt traipse through my office and make a mess of my neatly sorted piles.
Use Manila Envelopes And Label Them
The tax forms classify deductions in specific categories. Use these to your advantage by sorting your tax papers into manila envelopes labeled with the category names. Once you’ve got your envelopes marked, fan them on the floor around you in a circle and sort your receipts and other papers into the appropriate category. The most commonly used types are:
- 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 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 costs 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, make separate envelopes for each of these): Receipts for advertising, office supplies, office cleaning, office repairs, employee pay, payments to contractors, business-related meals and entertainment, professional licensing fees, business travel, equipment purchase or rental, and contributions to SEP-IRAs, SIMPLE IRAs and solo 401(k)s.
- 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.
Store Envelopes Together With Your Returns
According to the IRS, you should keep tax documents for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later. If you deducted bad debts or worthless securities you should keep your returns and supporting documents for 7 years.
So, make a copy of your return after filing and store it, along with the manila envelopes containing your related tax documents and receipts, in a labeled expandable folder. Should you need to amend your return or get audited (knock on wood), you’ll know exactly where to find the relevant information.
Make Next Year’s Filing Easier
Once you’ve finished sorting last year’s papers, label the second set of empty manila envelopes with the same categories you used for this year. Keep these envelopes in your home office. Now, mark another empty envelope TAX-RELATED and tape it inside a cupboard door in your kitchen or wherever you sit to pay bills.
As tax-related receipts come in, tuck them in the envelope near your bill-paying location. Once a month, make a point to empty it by filing the collected receipts into the other set of labeled manila envelopes. Now, when tax season rolls around your paperwork is already sorted; all you have to do is calculate expenses and enter them on the tax form!