How To Maintain Your Tax Information Organized Throughout The The ...

This enormously complex behemoth means that for those brave souls who undertake preparing and filing their own taxes, they need to have their ducks in a row come Tax Day. The best way to prepare is to organize all pertinent and necessary documentation according to a system. The most common way is to keep a file cabinet for all financial information and have a different file folder for each category. Aside from staying out of trouble with the IRS, other advantages of doing this include avoiding extra tax preparation fees. Professional tax filers do not like going through boxes of disorganized documents, and they will charge for doing so.

A Simple Filing System

Keeping all documents in different files saves the taxpayer money by avoiding overpayments. The Government Accountability Office reports that individual taxpayers overpay the IRS by hundreds of dollars each year. This is the result of failing to organize tax documents properly. Taxpayers miss deductions and tax credits in the avalanche of paperwork that is generated each year.

Here is a simple system of organizing tax documents. Create three folders, one labeled ?Income,? one labeled ?Expenses and Deductions,? and one labeled ?Investments.? The Income folder is for all records of income earned or generated throughout the year. Save everything that comes in the mail about income. Start writing down all income amounts earned and their sources on a sheet of paper stored in this folder. When the official documents come in, verify each one and check it off on the sheet.

In the Expenses and Deductions folder, create sub-folders for each deduction category, such as charitable donations. Keep track of all deductions in this folder and use them when preparing this year?s return. Finally, the Investments folder contains everything related to any kind of investment made during the year. Organize this folder into sub-folders based on whether the investments are taxable or not. For instance, tax-fee municipal bonds should go into their own folder.

Alternative Organizational Methods

Organizing tax documents can be frustrating because of the length of time a taxpayer is required to hold onto them. Generally speaking, tax records should go back at least seven years. This ensures the documentation is still there if any complications ever arise. Tax records older than seven years should be thoroughly disposed of, usually by shredding them all and separating the remains by throwing them away in different locations.

Aside from the simple three-folder system described above, some taxpayers may need to use more folders to keep track of all their documents. There are no hard-and-fast rules when it comes to organizing documents. Each taxpayer?s mind works differently in idiosyncratic ways. An organizational system can be based on numbers instead of categories. Each IRS document comes with a number that tells the taxpayer how to order them when sending in his return. The taxpayer may wish to organize his documents by those numbers instead of by individual categories.

The author is a contributor and researcher of small business resources and options on subjects such as online tax softwares. Please visit http://www.tax-compare.com/tax-return-software-companies for more information on online tax services.

Source: http://articlelearn.net/how-to-maintain-your-tax-information-organized-throughout-the-the-next-tax-period/

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