Prepare Your Papers for Tax Season

Even though the deadline to file a tax return isn’t until April, if you don’t start getting organized, it might sneak up on you. Don’t get stuck rifiling through a mess of papers spread out over your kitchen table the night before. Start organizing your tax documents now and save yourself from future headache.

Why is Now Such a Good Time to Get Organized? 

Even though the April deadline to file your return seems like it’s far away, the time to start getting your documents together is now. If you wait until April, receipts for items you plan to itemize are more likely to get shuffled in with other papers or accidentally thrown out with less important papers. It’s not just about the physical documents either, with the year fresh in mind, you’ll have a much easier time remembering all your relevant financial actions and where to get the documentation.

Setting up an Organizational System

A good organizational system is indispensable for those who fill out and file their own returns, and it’s just as important for those who don’t. If you employ the services of a tax professional, you may feel that it’s appropriate to simply hand over all the relevant financial data in a big pile. After all, as a tax professional, sorting through this stuff should be a breeze, right? Think again. Because unless you have an accountant on retainer, no one is more familiar with your financial actions than you are. No matter how financially literate an expert is, sorting through unfamiliar documents takes lots of time. You can be sure that their time is going to be expensive. Well-organized documents could save you some significant dough.

If you’ve never kept your tax documents organized before, here’s a four-folder system to get you started:

  1. Tax Documents — This folder is for your tax forms and any other IRS documents
  2. Income — The paper trail for your income, like salary and earnings, go here.
  3. Expenses and Deductions — Support for any deductions you’ll be taking go here. If you’re itemizing your deductions, you may choose to separate this folder into categories.
  4. Investments and Business — Investment sale confirmations, purchase receipts, year-end overviews and dividend reports belong in this folder.

Feel free to make changes to this system as you need to. For example, you may find that you’d like to add a folder if there are enough related documents from a certain activity, or that you just need the first three folders.

Don’t forget to order documents in the folders by date (if possible). Whatever you do, don’t get rid of your files. Getting this all organized is a lot of work, and you wouldn’t want to just toss that, right? It’ll be very nice to have just in case you get audited someday (knock on wood) or simply have some questions of your own.

Keep an Eye out

You’ll get statements from brokers, employers, banks and other institutions in January. Be sure you know whether or not you’re signed up for e-documents. If you are, make sure that the institution has your most up-to-date email address.

A Head Start on Next Year

Once you have your system of folders and files in place for 2016, take a few extra minutes and start folders for 2017. This way, as soon as the new year starts, you can keep your documents organized. When the 2018 tax season starts looming, you won’t have to sweat it at all!