Filing taxes is a tremendous task, especially when it comes to maintaining a proper personal filing system. The dates of purchases, the receipts of expenses, and other documents are very important for record keeping. To file a tax return that is complete in all aspects, you need all necessary documents and other proofs as they show the amount of investments and expenses you incurred within a tax period.
Also, these proofs are mandatory requirements when you have to apply for loans; failure to produce may prolong the loan processing period. Personal filing systems therefore, require a lot of preparation and organization from the individual. You may choose to keep a paperless system or simply manage all the hard copies as a file.
Proper Labeling: Before you start, ensure that you have a one letter sized pocket file expandable up to 3 inches, files, folders and the labels for the same. It is always prudent to label the primary folder and the remaining file folders appropriately as personal expenses, medical or dental bills, expenses on renovation, large purchases, utility bills, bank statements, credit card statements and receipts, investments, and tax records.
Categorize the Documents: With all documents and files labelled, organize them for the filing system. The documents may be placed in the respective folders and packed into the primary folders and safely placed in a drawer. As the days go by, you may add more receipts, pay slips and other bills into different categories. You may also include the expenses related to education, travel, and pet relocation. But ensure that you never miss a bill by chance. As soon as you make a purchase or pay a bill, file those slips right into the folders immediately.
An additional folder that draws your attention on unpaid bills can be labelled as “bills to pay” that ensures you pay your outstanding bills on time. Similarly, a folder with a label as “Needs attention” will help you sort out any abnormal or suspicious bills, as in case of credit card, for example.
File Daily: Daily filing is a smart choice as it helps you to keep all the folders up to date without missing any receipts or bills scattered here and there. Make it a habit to check mail regularly and place the bills in the “bills to pay” folder and receipts in a proper folder as labelled. Any bills that are overcharged or misappropriated may be placed in the “Needs attention” file and sorted out quickly.
Time Factor: When you have documented properly the next question that arises is the duration in which the document will be preserved. The IRS requires that you keep the records for at least 3 years. In other cases, IRS may ask you to keep them for additional 3 years. So, preserve the files for about six years.
Some of the documents that have to be stored for 6 years are; documents for tax deduction, brokerage statements for tax returns, records of selling a house or property and records of expenses and incomes reported for small business as reported on tax returns.
Some other documents may be kept for a life time, such as tax returns, property deeds, closing statements, life insurance policies, property deeds, life insurance policies, estate related documents etc. You may discard the less important bills such as cable bill receipts, ATM receipts, bank deposit slips, pay check stubs etc.
Keeping all the documents in an organized fashion, you can make use of a clutter-free personal filing system that will at the end of the year, help you pay taxes and reap other benefits. In case any of the tax documents is lost or misplaced, make an effort to obtain a copy.