Happy Spring! As we get the itch to start our “Spring Cleaning”, we wanted to add one more item to your list. In between cleaning the guest bedroom closet and organizing the pantry, be sure to pencil in “organize tax stuff”! We find that cleaning out the old and organizing the new and important can make a big difference in the world of tax! Here are some tips:
-GET RID of old tax paperwork you no longer need. Typically, the IRS has up to 6 years to audit your tax filings. Use this timeline (or 10 years if you want to be safe!) to keep records that support your tax return figures (we are big fans of electronic record-keeping: scanning everything, saving things in organized computer folders, etc., but hardcopy works too!). We suggest ALWAYS keeping a copy of returns you filed. Be sure to confidentially dispose of your no-longer-needed documents via shredder, document destruction service, etc. If you’re worried about getting rid of documents you may need later for non-tax purposes, see how long the financial institution/company who provided you with those documents will retain a copy themselves. When in doubt- KEEP, but keep it organized!
-Save a copy of the tax return you file this Spring (your 2016 return); if you prepared and filed it electronically, save a copy to a “Taxes 2016” folder on your desktop. If you like a hardcopy of important documents such as tax returns, buy an envelope, binder, or folder to keep your return copy in.
-Be sure your financial account information is up to date: store (in a safe place, of course) all the necessary user names/passwords for easy access to necessary tax-related documents; ensure that all financial institutions have up to date contact information for you, etc. It’s also a good idea to periodically update your passwords for security purposes.
-DON’T keep throwing those tax deduction receipts into a box (or worse, in the trash). Start an accounting system either through Excel, an accounting software, etc. Do your best to categorize receipts and expenses NOW so you don’t have to make sense of them later at tax time. (Keep an organized copy of the receipts too, of course). Tracking your income vs. your expenses is helpful for budgeting purposes, also!
-BACK UP important documents. If you like to keep a hard copy of tax documents, consider storing them digitally as well. If you keep everything saved on your computer, be sure they are backed up onto the cloud or an external hard drive.
-Keep in mind that bank statements are not available online forever, and after a certain period of time, banks will typically charge customers for copies. If you find yourself often needing to reference bank statements for tax/accounting purposes, store copies of bank statements in a safe place for future use!
-Lastly, as you cross those other items off the Spring Cleaning list, consider what’s tax deductible. Instead of tossing old clothes, dishes, housewares, etc., donate them and receive a receipt when making the donation to track your fair market value donation (the IRS likes to look at what thrift store buyers would pay).