See Part 1 Here:
STEP 4 -Decide if you Need to Establish Sub-Categories
If you use a tax preparer, just separating INCOME, EXPENSES, and STATEMENTS may be enough. Ask them how they want the documents submitted.
If you are doing your own taxes, you only need sub-category folders for those categories that have a lot of paperwork. If you have a lot of tax deductible expenses, I highly recommend using some kind of financial record keeping software to keep a running total for you throughout the year.
If you need sub-categories for INCOME OR EXPENSES, I recommend using a financial filing system with categories that reflect the categories you had entries in on your tax return last year.
Review last year's return and note which expense and income categories were used.
Use those sub-categories as the basis for creating a MASTER FILE LIST to guide you in creating a file structure.
For example, if you deduct expenses related to rental properties you own, and you have a lot of expense receipts, create a folder called Rental Property Expense receipts.
A sample MASTER FILE LIST structure may look like this.
o Salary & Wages (Include all your W-2s and /or 1099s here)
o Interest & Dividends (1099s and Year end statements only, you don't need the whole years worth of documents to prepare your return.)
o Rental Income
o Property Taxes
o Mortgage Interest
o Job-related Moving
STEP 4 - Choose a Final Home for Your Papers
Once you have it all sorted out, you can see how much paperwork you have and choose an appropriately-sized container. With fewer than 12 or 13 categories, an accordion file could be a perfect solution for organizing your tax - related paperwork. Keep it in a handy location so that as you receive tax documents, you can immediately file them. In doesn't matter where, as long as it is near where you process mail and pay bills, easy to access, easy to use and easy to put away.
STEP 5 -Submit / Prepare Return
By mid - February, all your 1099s should be received and organized. All you have to do now is take them to your tax preparer to do the rest! Or, if you prepare your own return, consider using an web-based or software system such as Turbotax to simplify the job. It stores your past returns and pre-populates this year's return. I find that with Turbotax, I get my refund much faster and as a bonus, It's Deductible is included free. Last year I got over $1000 back just because I kept track of my donations and used It's Deductible to determine the value of the donated items. The values they give are IRS approved and actually more than I would have guessed. So for $1000 it was worth the half hour it took me to keep track of and enter the items into It's Deductible. How else would I get paid $2000 per hour?
STEP 6 -Get Ready for Next Year - Archive Your Paperwork
Instead of creating a whole new system for next year, empty the system you created this year, put all your documents in a single envelope or folder labeled Tax Documents - (YEAR). Create a separate folder for your final Tax Return as well, and archive them in a safe, out-of-the-way place. You will keep the tax return forever, but after 3 - 10 years, you can shred the backup. here are only a few documents you should keep forever and those should filed separately - never put them with your backup. For example, paperwork related to the purchase or sale of Real Estate should be kept forever.
STEP 7 - Celebrate and Relax!
Now you can celebrate and congratulate yourself for a job well done! When spring rolls around, take your refund and do something fun as a reward for not waiting till the last minute!
NOTE: The tips in this article work for most people, but if you have a unique tax situation or are overwhelmed trying to decide what will work best for your organizing needs, consult a financial organizing professional to help you set up a simple, efficient, easy-to-maintain system and ensure a stress-free tax season!
© 2008 Ariane Benefit, M.S. Ed, Organizing Coach,