Organizing Paperwork For Your Taxes
Please don’t throw rotten eggs at me for mentioning taxes, especially for mentioning them now. I mean, we have a couple of months before we need to think about it right? Sorry, but I am one of those sickening people who has her taxes done and in the mail by the first or second week of February. So please forgive me. : ) (Note from Tawra: She has a short tax form to fill out so don’t feel too bad if yours aren’t completely done yet. :-) )
You may not realize it, but you can save money by having your taxes done early if you are getting a refund. The earlier you get your taxes done, the sooner you will get your money back. Then you can apply it to your credit card debt, your house mortgage, other debt or savings. You can save two, three or even more months interest on things if you can pay them down sooner. Every minute you procrastinate means you are losing money.
If you are in debt up to your eyeballs or are unemployed, don’t even consider using that money for a vacation, big screen TV or putting a swimming pool in your yard. Give yourself a good shake, take control of your finances and stop allowing your finances to control you. Get some backbone. Here are a few ideas I thought might help you “normal” people who sometimes (always??) wait until April 15 at midnight to mail your returns.
Half the battle is trying to find the paperwork you will need. Once a year I go through my papers, desk, file cabinets and anywhere I might have documents relevant to taxes. I usually do it in January so I can start fresh for the year. If you can get that done ahead of time the rest of the process will go much easier.
Here’s where to start:
- Start with your desk and the piles of papers you have laying around it and on it.
- Next, work your way to your file cabinet.
Use the following things to help you get through organizing your taxes and paperwork:
- Move Quickly – You don’t have to thoroughly read each and every paper. At a quick glance you should be able to place it in the pile or box it belongs in. Now is not the time to study and think about each item. After you get them in their piles, which I have listed below, you can then take each separate pile and deal with it in more detail.
- Place everything in one of four piles. – Everything can usually go in one of these four piles. If you have mounds of papers making a big mess, you may want to put them in boxes instead of a pile.
Here are the four piles you should use when getting tax documents together:
- Trash – if you need to shred things, place in a bin or bag to shred at a later time. Now is not the time to shred one paper at a time.
- File – these are things you don’t need to do anything with but you do need to keep and file. Place them in a box to set by the file cabinet and file later. If you have a lot of filing you may want to set aside one whole day for this because, before you file the new items, you will want to go through each file folder and toss what you no longer need in it.
- Bills – Put these in a separate pile to go through and take care of as soon as you are done sorting.
- Correspondence – Correspondence includes the things you need to make phone calls about or deal with in some way. Take care of these by placing them in the order of importance or by date which they need to be done. These should be dealt with after you have dealt with the bills.
Papers and laundry are two things that easily get out of control in people’s lives. The secret to keeping it under control is to stay on top of it and to follow through with it. In the same way you shouldn’t leave laundry laying around in piles after it is dried, you shouldn’t leave paperwork laying around after you first look at it.
While you still have your mail in your hand, place it in the trash, in the “to file” pile, the bills or in the correspondence pile.
Keep a trash can by your desk along with three trays, file folders or even separate piles on your desk or counter. Use one tray for things to file, one for bills and one for correspondence. If you can’t figure out what pile something should go in, add a miscellaneous file or tray too. As far as tax papers go, these start in your file pile and then are placed in your file box or cabinet in a special tax folder.
Be ruthless. We usually keep way more papers than we need. For example, unless you have your own business at home, you really don’t need to keep five years worth of utility bills. I keep three months worth just in case I need to show I have lived in my home for a certain amount of time. Each person is different but if you have a question call your accountant or the IRS now (Don’t wait until April 10 because they’ll be so busy, you won’t get through to them) and find out exactly what you need to keep. I have also called one or two credit card companies to see if I need to keep their statements for any reason and in normal circumstances, you don’t. Everyone is different, though, so take just a couple of minutes and make the call. It will save you time and work later.
Read some of the other articles on our website for more information on organizing your paperwork if you need more tips but these basic guidelines should help you get started.
Note from Tawra: Some states are now having money problems and not sending back tax refunds you should get for many months or longer. I strongly suggest that you start making sure you are only taking out what you think you will need to pay and NOT using it as a savings account as a lot of people do. You never know when there will be big crisis in the government and you don’t get the refund back at all.
Plus, if you have a refund coming, and file earlier, you will likely get the refund earlier.. Do to high volumes of e-file, the longer you wait the longer it takes to get a refund..
I find it fairly easy to save money on meals and grocery related items, but am sometimes confused when it comes to more complex expenses.
Thanks for the practical suggestion on a bigger ticket expense.
Wendy (Give Love Create Happiness)
you have re-motivated me to stay on top of both my laundry and my paper work, thanks!
this won’t help for this year but next year you can cut down on keeping paper work.
get your bills online through your bank and pay them online. The bank saves them for 7 years and you just have to print out the ones you need.
And don’t forget the other side…don’t put your head in the sand if you do think you owe taxes. Do your taxes, find out, and now you have more time to plan how to penny pinch before the bill comes due. No matter which side of the tax season you’re on (refund or payment due), it pays to do your taxes as soon as you have all the required documents. As others have pointed out, you can get your refund earlier and avoid interest by paying bills sooner, OR you know exactly what you owe and have time to plan on how to get it paid by April 15thbor have time to make arrangements. Time’s a tickin!
I was always too nervous to do our taxes myself; but after being charged $221 last year to have them done, I decided I had to do them this year. Went to turbotax.com and they walked me through it and e-filed them for me for free. I did my taxes on Jan. 23rd and received my direct deposit refund on Feb. 5th and saved myself over $200! Turbotax charges to do your state, but here in PA you can e-file state also, so I ran it on turbotax to see what the total should be. I then went to my state’s e-file and did it and when my total equalled what turbotax had said; I know I’d done it right.
Since I used to work for the “Department that shall not be named”, your suggestions are sound. I would suggest a couple of strategies. First Turbotax is great, also TaxAct is a good solid tax program. E-file is a good idea if you are expecting a refund. If you owe, remember there are two kinds of penalties, failure to file and failure to pay. So, save yourself some money if you owe, at least file no later than 4/15, you avoid failure to file penalty that way. If you can’t pay it all at once, pay what you can with your return. This limits the penalty for failure to pay and interest assessment. It will take 4-6 weeks to process your return that is filed manually with a balance. During that time if you can send another payment do so. Don’t forget to write the social security number of the first person listed on the return (typically husband if your filing jointly) and the year you are paying on, remember last year is 2009. If you need more than 90 days to pay off your balance here is what I suggest. You will receive a series of letters, 4 to be exact. Each time you get a bill, make a payment. When you get the final bill (it will come certified mail) and if you can pay if off in another couple of months call the IRS at 1-800-829-1040 and ask about doing that. If it will take a while (6 months or more) you will have to ask for an installment agreement. There is a fee of $105.00 for that agreement. You can do it over the phone or by sending in from 9465 that you can get from the IRS website. Once it is accepted, you will get a reminder notice every month or so, it also shows the declining balance. If you have a balance left next year and a refund is due you for 2010 then they take the rest of the amount due out of the refund and then send you the difference. Well I know that is long but I hope it helps others.
Since I am a licensed tax pro–answer on how long to keep documents. If a document is used to prove a tax deduction on a return–keep for at least 4 years. If the receipt shows payment for major improvement (new roof etc) keep as long as you keep the home or “big item” –proves how much you put into it (called basis)–usually the larger your “basis”, the less tax you have to pay (if at all) when the item is sold.
If you made a mistake or missed a credit on your return–you can amend up to 3 years after tax return is filed or 2 years after tax for that year is paid whichever is EARLIER.
Following up on Mary’s comments–I have most of my clients estimate their tax bill before taxes are due (december early jan) If they can put what they owe into a savings account and then pay in full before april 15th they save the installment agreement fee and the interest (which could be as high as 9%). For a “rough guestimate” (assuming income is roughly the same) look at 2008 tax return–the line that says total tax due (before credits)–compare that to your withholding. If your withholding (“federal withholding line on pay stub) + credits is larger than last years tax bill you should be okay in most cases–file early! and have a “friendly relationship” with a good tax preparer (for questions) it helps!!
Grizzly Bear Mom
Don’t forget to change withholdings on your W-4 as appropriate. If you are getting a large refund, it is the same as loaning money to the government interest free for 18 months! Instead adjust withholdings on your W-4 so less money is withheld for taxes, and put the difference in savings (across town if that is the only way you will save it!) Or if you have to pay taxes and have difficulty writing a payment check, change your W-4 so more money is withheld for taxes on a monthly basis. Yes, get your taxes done early, but don’t send in any paymnets until April 15th.
My husband always does our taxes as soon as we have all the paperwork we need mailed to us. I love getting a return early. This year we already have ours in the bank & are making a list of what to use it for.
The EASIEST way to organize your paperwork is to get one of the big accordion files that is divided into categories and then just file things as they come in during the year(paid bills, receipts, mortgage/rental papers, gas receipts for your car, receipts from Good Will or other places where you donate items, items bought online, tithing slips, etc). Then when tax time comes along you just pull out the things you need for your taxes, throw away what you don’t need (what don’t we need? That is always hard for me) and put the file folder away with the things that need to be kept for 7 yrs in case your audited.
It’s SO MUCH EASIER than having things ON your desk, IN your desk, IN your filing cabinet, IN a kitchen drawer or where ever things have been scattered through the year.
Be organized from the very start.
Katharine, you are right on! At the beginning of every new year or usually when I have the first receipt for something I need to save for taxes, I create a tax file for that year (I label it Taxes XXXX, for whatever year it’s for). I keep this folder at the very front of all of my other files that I use throughout the year. As I receive receipts or anything that needs to be saved for taxes for the next year I immediately file it in my folder. Once I file the taxes for that year I put the copy of my return along with all of my receipts back into that folder and move it to another file cabinet I have downstairs where I store all of my past years taxes. That makes it very easy to go back and pull the file for a given year if I need to.
The Commonwealth of Massachusetts refused us our refund last year after an audit. They apparently audited many people who own their own small businesses and took an earned income credit. It is people like us who cannot afford expensive accounting services to fight for us, or lawyers to threaten for us that are the easiest targets of the department of revenue. Even after I sent 400 pages of documents to the DOR, they still refused us our earned income credit. I have heard that the state is doing the same of worse already this year, and that the IRS is not ready for the submission of taxes this year.
I love your newsletter! We use our refund to make our house payments all year. Would it save us much to make all 12 payments at once? I asked our lender that once, and they said it would save very, very little.
It depends on how much it is. I would say they are probably right it wouldn’t save a ton more but it might be a couple hundred dollars.
I’m wondering if we could pay our mortgage for the year all at once? That is our biggest bill and that would free up a lot of money for catching up on the other debts. Or does paying the other debts make more sense since they are at a higher interest?
For the past two years, my husband has been out of work more than in a job. He’s a hard working man! It’s frustrating when the jobs aren’t out there! So, perhaps paying the mortgage ahead would give us some security. We haven’t missed a payment yet. It’s our first priority.
For our taxes, since our income is so low, I make a list of documents we are waiting for: W-2’s, interest and dividend statements. When we have all the documents, I do our taxes. We come close to zeroing out with the standard deduction, so I don’t see the need to collect all those receipts. I worked out our taxes both ways before and found we came out ahead with less paperwork. Big family, low income.
Even though I usually say pay your mortgage off as soon as you can if you have car payments and credit cards or other debt like that with high interest then get those paid as soon as you can and first.
This is for others reading this and doesn’t mean you Sheri because with a large family I know medical things and stuff like that happen but it is a word of warning to others to get these things taken care of before you get laid off or things get bad. Now I know some can’t but 90% of the people we deal with had a time in their life when they had a nice paying job, things were going great and they were spending like there is no tomorrow – vacations we just couldn’t give up, nice houses we wanted (everyone with only 2 kids needs 3 bathrooms???), shopping for clothes, electronics and the list goes on. Then comes the lay off and the person stumbles around like they have been hit between the eyes saying “How did that happen?” It happens and often worse can happen so be as prepared as you can before.
Don does our return with a computer program. It is great and saves a lot of headaches. It is all done within an hour and we click a button and it is sent and usually within a week the money is in our account at the bank.
Had to laugh as my son had to pay a bit over $100 when the government audited him. I know paying isn’t something to laugh at but the funny part was his wife is an auditor and he said it wasn’t fair as she could have done it and said no payment required.
We are still waiting for Dons forms from work and then they will be figured out and sent.
Last year he filled mine out I don’t work but still have to file so we got a big laugh when I got $36. back.
Oh well governments are funny creatures.
Hello, I just read your comment on the bottom of your letter to us, about not letting States have your refund money….it may not come back to you. I about freaked, I have not thought of that. You as always, make a great point!! I am about ready at the age of 41 to graduate from college for Accounting. I just did our State taxes. what is odd, is in the middle of the night I awoke from a dream with the thought as to part of what I think is our States Income Receiving problem. I think I know a way for our State (WI) to be way more accurate and collect there fee’s way better than they are doing. If they are slow, wrong or too hard for the common person to complete they will not get the correct amount of income. They are going broke and need income and to reduce expences. I have visions of how the program needs to be, it would be beautiful. Do you know who I should share these thoughts with? I compare our States Revenue collecting to cell phones……they are like track phones…..immagine if they were like Iphones. I think they don’t have the employees who are updatedly trained and they need to hear my idea’s. I welcome you thoughts. Bless you for your wisdom, I enjoy learning from and with you. Julie Radke
Julie, that’s a new one on me. I think you are totally right but I’m not sure where you should go. Sorry I can’t help!
I have a question for the professinals: can I scan my receipts and if ever audited print them out? I’m talking about such as work clothes receipts, and other tax deductible. I’m drowning in papers that I’me saving as my husband is self employed.
The short answer is yes. Just make sure you scan them so you can see everything on it.
For those of you who need more security the long answer is yes you can according to IRS Procedure 97-22
Maxine I wanted to tell you that I forgot to mention that for the Federal tax you can scan but you need to check with your own individual state and see what their policy is on scanning. Now a day most places let you but you might want to double check on that.
Another reason beside the boxes of cluter I would love to get rid of, I’d like to start scanning the receipts is I’ve found that over time the receipts fade and I can hardly see the print on them.
I keep folders for all utility bills, credit card statements, medical, checking account statements, etc. and then in each folder the bills are organized chronologically. Then in Dec you just have to empty each folder and you are ready to have your taxes prepared.
This method is also helpful as all your insurance car and life and home are all in folders and when you need to refer to something it is right at your fingertips. I also keep a spreadsheet of all bills and expenses. In addition I keep my checkbook on the computer and all items are categorized so it is easy to see where your money is going.
I had trouble keeping up with receipts through the year. They were always in my pants pockets, purse, or coat. I usually unloaded on the bedroom dresser to which they would soon end up in the floor or trash. To try and fix the problem I took an empty tissue box, marked it 2012 receipts & kept it in the bedroom..it worked!! All I had to do was sort what was needed. Simple & easy because I had a special place & no cost. Thanks for your comments!
Good suggestion Cathy. I wrote a whole article once on if something isn’t working for you figure out why and what you could do to fix it. For example if no matter what you do your son keeps taking off his clothes in the opposite corner of the room from the hamper and leaving dirty clothes there then move the hamper.
Grizzly Bear Mom
julie, how about writing up a five sentance plan and adding it to your resume and cover letter for when you are job seeking? We need smart people like you in government.
I have found that using legal sized envelopes with the month and year on the outside, helps organize our receipts. we then file them in folders which are labeled for each of the 12 months. Other info also goes into the folders. At tax time my husband used the information gathered to do our taxes. Really works for us. JudyNelson
Started several yrs ago to write down in notebook every month things like: medical miles & expenses, volunteer miles, donations: cash & goods. Since these things do not occur every day it is easy to keep track of them. Use a new page next month, that means I have 12 pages of items I can deduct next year. Makes it very easy to add 12 pages, than have to go through a yr. of paperwork. Works for me. Gertrud
You would save a lot more money by using your refund to make extra payments to principal only rather than using the refund to make your regular monthly payments with it. In other words, pay your regular monthly payments and use your refund money to pay on the principal only. I don’t know if it would be wise to use the whole refund at one time to pay principal only or to do this each month. Ask your lender about that. But this will definitely save lots of interest and help pay off the mortgage faster.
Our bookkeeper trained me early when we had a business. She provided me a sheet that I needed to fill out each year. It had refund amounts from prior year, mortgage interest, medical expenses, medical mileage, charity, personal property taxes, real estate taxes, bank info, etc. on it. I still use it today. I also realized for my sanity that it was worth the expense for duplicate checks. When I pay a bill, I staple the duplicate to the bill instead of writing the info on it. So I prepare for my taxes all year long by keeping the duplicates of checks for tithing/charity, taxes paid, medical expenses, etc. in a little acordian file used for coupons. It stays in my bill box so I can put it in right afterwards. When it’s time to do taxes, it only takes me about an hour to tally all the figures. I also keep a file with my bill statements just for medical & taxes for the actual statements from charities and doctor visits. Hope it helps.
I have a small business and do use an accountant.
I keep a notebook and write in that every income or expense as it happens daily.
I write the checks for bills as soon as they arrive and in the place for the stamp note the day they MUST be mailed
Paper work goes straight into a box, and up to now has been sorted at the end of the year. I make piles on the dining room table for things like utility bills, bank statements, tax receipts and when that is done put them in order by date.
This year I have asmall file box with folders for every type of paper that I hope to immediately put each paper into the correct category.
I have kept the previous year for comparison.
Each year as I do the taxes and add the previous year to the file the pack for two years ago can be discarded if it is something I discard legally such as utility bills.
I know there are computer programs etc out there but I am older and mathematically challenged so I do it the way that is easy for me. I like the look of the “Neat desk’ that is currently widely advertised but the truth is I just don’t trust a lot of these things.
Right now I am also trying to make things easier for our children should I pass on before my husband because I know he will be an anxiety mess. He spent his working life cared for by a wife and excellent secretaries!
I do love my computer and spend hours reearching things but if I want to keep say a pattern or recipe I print it out.It is mostly my age but as I tell people “I am a suspicious old lady”
I have also think about what happens if at some time we don’t have computers or am without electricity for several weeks which can easily happen with a storm or something. That is why I am like you and like to have real live paper as a back up. I wonder if it isn’t so much we are older but we have been through enough “emergency” situations and life to know things can happen.
And computers die. Even though the memory can be copied on to the next computer, it only works if there IS a memory to copy! My daughter’s laptop got erased! No files left!
Hard copies take up space, but they don’t go, “POOF all gone” at the accidental push of a button. I think age in this case, is also wisdom!
Hi, I’ve been following your blog for quite some and have implemented quite a few things..
We do one thing extra here but it’s through out the year. We keep a log book for mileage log it in every day including repairs for car. At the end of the year we total everything and put it in tax file. We do run a business from home, so all expenses for business are filed on a monthly basis. By February we are more than ready for accountant. She loves the fact that I organize it into different categories and she takes over from there.
You can also use a flash drive and download all tax relevant receipts onto it
My Husband and I deduct, so EVERYTHING deductable is placed in a fine. Mileage precalculated for medical trips etc. We brought this in and this year and got a return of $3400! It works. Stick with it!