Every year the ordeal of gathering the information needed to complete and file your tax return seems more and more difficult, doesn’t it? This problem can be alleviated by implementing an efficient home filing system.
But completing your annual taxes isn’t the only reason to have a good filing system. It’s crucial to retain receipts to show how much you paid for properties and investments, as well as to check when purchases were made. It’s nearly impossible to get a loan without disclosing your income and expense records.
Keeping track of paperwork is a must, and it can cause problems for those who are unprepared and disorganized. However, creating a home filing system that makes sense can be quite simple.
Configuring a File System
If you haven’t converted to a paperless document storage system yet, you can easily manage a system to keep track of all your records.
1. Purchase of necessary supplies
Visit your favorite office supply store and make the following purchases:
- A letter-size pocket file that expands to three and a half inches (approximately $3)
- Various file folders (less than $1 each)
- Labels for your file folders (approximately $3 for a pack of 250 labels)
2. Create labels
Label the year fold folder. Next, create a label for each file folder as follows:
- Personal expenses, such as clothing, books, groceries, and entertainment
- medical / dental
- utility bills
- Big purchases and home improvements
- Bank statements
- Statements and credit card receipts
- pay stubs
- tax records
3. Organize your documents and files
Once you have your folders labeled, start organizing your filing system. As the year progresses, you can add more folders to hold receipts for new categories you need to keep track of, like education, pets, or travel expenses.
Put your file folders inside the expansion folder, and keep your file system stashed away in a drawer or filing cabinet. Every time you make a purchase or bill payment, please do so right away to place your receipt in the appropriate folder.
To stay on top of bill payments, create a folder labeled “Bills Due.” Keep this folder in a highly visible location so you’ll be reminded to visit it regularly to pay your outstanding bills. After each bill is paid, place the record in the appropriate folder in your filing system.
You should also create a folder labeled “Needs Attention.” For example, if you need to inquire about a suspicious charge on your credit card, or if you need to contact a vendor who did not give you credit for paying your most recent bill, you should keep a record or reminder in this folder.
daily file method
By implementing this system, you can reduce the time you spend searching through scattered documents by having your files organized in organized and properly labeled files. Create a daily routine to keep your files consistent and properly maintained:
- Pick up the mail and peruse it at your desk or kitchen table.
- Open each piece of mail and reserve the junk mail and envelopes for recycling.
- Put the bills in your “Bills to Pay” folder.
- Put receipts in their appropriate folder. For example, summaries of medical services should be placed in your “Medical/Dental” folder.
- Anything that needs immediate attention should go into your “Needs Attention” folder so you can take care of it quickly.
What to keep and for how long
In most cases, you should keep records for at least three years, since the IRS typically looks at three years of your history during a tax audit. However, the IRS may choose to look another three years into your history, so it’s wise to keep records for six years.
Here are some records to keep for six years:
- Receipts for any deductions you have included on your tax return
- Brokerage statements for transactions reported on your tax return
- Records related to the sale of a home or other property reported on your tax return
- Income and expense records reported for your small business on your tax return
Each piece of paper that supports the information reported on your tax return must be kept for six years from the date you filed the return.
However, there are some records you’ll want to keep forever:
- tax returns
- Deeds of Ownership and Closing Statements
- Records of your contributions to your retirement plans
- life insurance policies
- Estate planning documents, such as a power of attorney or trust agreements
paperwork to discard
After you complete your tax return for the year, there are some documents that can be discarded. Unless it relates to your tax return, you should be able to get rid of the following items:
- Bank deposit receipts and ATM receipts
- Pay stubs
- Utility Cable Bill Receipts
There’s no time like the present to start organizing your paperwork. The sooner you establish an organized filing system, the sooner you can reap the benefits of a cluttered home or office. It can also be much easier to access any documentation or record anytime you need it.