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Organizing Your Tax Documents

What to Toss, Keep, Shred or Digitize

From ATM receipts and bank statements, to receipts for auto maintenance, home repairs or the purchase of your new refrigerator, most of us are up to our ears with the paper that flows in and out of our homes every day. And with tax time around the corner you may be wondering what you really need to get organized for tax filing.

The good news is that you don’t have to keep as much as you might think. A little organization can go a long way, and digital technology has made it possible to dramatically reduce paper clutter, while still maintaining important documents and tracking expenditures throughout the year.

Here are a few simple tips to help you identify what to keep for tax purposes, what you can safely get rid of, and how to organize and manage it all.

Gather documents

Whether you do your taxes yourself or work with an accountant, the process will be easier if you have your information in order. In general, you’ll need to know your total annual income, expenses that may change how your income is taxed, and what items can be deducted, such as charitable donations. If you have already paid some taxes you’ll need to know the amount of those payments. Web sites such as TurboTax.com and hrblock.com have helpful checklists, tax calculators and other tools to help you get organized and even file your taxes. Here is general checklist of some of the information and documents TurboTax says you’ll need in order to prepare your taxes:

Personal Information – Social security numbers and dates of birth for yourself, your spouse and your dependents

Income Information – Not all of these may apply to you, but sources of income that must be reported include:

  • Work
  • Investments
  • Unemployment
  • Alimony
  • IRA/pension distributions – forms 1099-R or 8606
  • Social Security – forms SSA-1099
  • Miscellaneous – income from things like jury duty, gambling winnings, scholarships, etc.

You can find a more detailed list here.

Itemized deductions

You’ll also want supporting evidence of purchases, donations or other expenses that can help lower your taxes. These are called itemized deductions and they will vary greatly from one person to another. A tax professional can help you identify which deductions apply to you. You’ll need receipts if you plan to deduct any of the following on your tax return:

  • Advance Child Tax Credit payment
  • Childcare costs
  • Education costs
  • Adoption costs
  • Home mortgage interest and points paid
  • Charitable donations
  • Casualty and theft losses
  • Union dues
  • Unreimbursed employee expenses (such as uniforms, supplies, etc.)
  • Medical and dental bills

Finally, you may reduce your tax burden by itemizing taxes you’ve already paid, including:

  • State and local income taxes.
  • Real estate taxes.
  • Personal property taxes, such as vehicle license fees.

Toss or shred what you can

Although you’ll want to keep some receipts for a short time, after you’ve checked them against your monthly statements you can get rid of the following:

  • ATM receipts
  • Bank withdrawal and deposit slips
  • Credit card receipts
  • Utility bills and most other monthly bills

Pay stubs can be destroyed after you get your annual W2.

Shred anything that has personal information on it. If you still feel a little nervous about tossing all those receipts and bills, use a scanner to create an electronic copy and ditch the paper. You’ll have the peace of mind of having the information available without the clutter.

Save only what you have to

A good rule of thumb is to keep tax returns and related documents for three years from the April tax-filing deadline. Here are a few more guidelines from Kiplinger to help you decide how long to keep tax-related documents.

Three Years

Tax returns, plus all documentation that supports your deductions, especially documents related to property, investments or business assets. The IRS has three years to assess additional tax and to audit returns; this is also the amount of time you have to file an amended return.

Four Years

Many states that collect income tax have an additional year to audit individual returns.

Six Years

Forms W-2, 1099 and other forms that document income. The IRS has six years to contact you if you have failed to report income.

Seven Years

Information regarding loss from bad debts or worthless securities.

You don’t necessarily have to keep hard copies – going digital not only reduces paper clutter, it may also protect your information from damage or loss by natural disaster, accidents in your home or accidentally throwing it away.

Bottom Line

It doesn’t have to cost a lot to store and manage documents safely and securely. If a shoebox works for you, it’s ok to stick with it. But there are a few items you may want to purchase if your budget allows.

Paper Shredder

A paper shredder can help protect against identity theft by destroying any papers that contain private information. Look for a crosscut or confetti-style shredder that makes it virtually impossible for the pieces of paper to be reassembled by would-be information thieves.

Document Scanner

From small portable scanners to those integrated into your printer/copier, scanners enable you to create a digital copy of personal documents that can be stored electronically.

External Hard Drive

An external hard drive provides a back-up storage solution that you can access from your computer, without the risk of storing sensitive documents on your computer. Some models even function as a private cloud drive, so you can log in from anywhere to access documents on the go.