Nobody likes paying taxes—and nobody likes all of the paperwork that goes into preparing your tax return. But if you want to make sure you maximize your deductions and minimize your taxes, it’s crucial that you maintain the records and documents to support your tax return.
Unfortunately, there’s no getting off the hook on this one.
Even if you hire someone to prepare your taxes for you, your tax preparer will still need the supporting documents to validate what they enter on your return. Whether your return is straightforward, or you are self-employed, it still comes down to good records.
*The following information and tips should not replace tax advice received from a professional.
How to Organize Papers and Bills
As we all know, January is when you start to receive numerous tax documents. This will include 1099s from your bank or brokerage house and W2s from your employer. Those are the straightforward documents. You certainly don’t want to lose them, so place them in a file folder when you receive them, label the folder, and store it in a place you won’t forget.
You’ll also want to track all other sources of income, including the following:
• Business or farming income
• Income from rental properties and expenses
• Miscellaneous income such as for jury duty, gambling profits, scholarships, etc.
• Alimony received
Adjustments to your income should also be tracked, including:
• Records of IRA contributions made
• Receipts for any qualifying energy home improvements, such as solar panels
• Any alimony paid
• Records of Medical Savings Account contributions
Taxes and the Self-Employed
For the self-employed taxpayer, maintaining supporting documents is a year-round endeavor. You will want to deduct the expenses that are necessary to run your business, including things like your cell phone bills, mileage travelled to clients, toner cartridge receipts, internet costs, or the cost of the computer you use exclusively for your business.
And while the tax laws have recently changed, you still can itemize deductions if they exceed the standard deduction.
What does this all mean? Paperwork. Lots of paperwork.
You will want to keep records for the following:
• Charitable donations. Remember that only actual donations, whether cash or items, not pledges, can be deducted. Also, gifts to individuals, even if given through GoFundMe, and foreign charities do not count. Be sure to keep records of non-cash charitable donations, as well.
• Medical costs. You’ll want to track any medical expenses for all family members.
• Childcare costs. Once again, you’ll want to track these if you itemize deductions.
• State and local taxes. These can be claimed as itemized deductions, as well.
• Real estate taxes. While these have been limited with the new tax reform, they can still be a great source of savings.
Depending on the specifics of your business, there may be other expenses that can be itemized. Make sure to do your research to find out what these business-specific expenses are and maintain organized records of all of them.
Tools to Make Tax Time Easier
In addition to keeping great records, you can make prepping taxes easier by having all of the supplies and tools you need on hand. These include:
• Your social security number or tax i.d. number and your spouse’s
• Copies of last year’s taxes
• Bank account and routing numbers, if you anticipate a refund and would like it deposit directly into your account
• Estimated taxes you may have paid during the year
How to Store Paper Files—and for How Long
Now for the kicker: Once you’ve completed and filed your tax return, the record storage has just begun. Most experts say you need to keep your records for at least seven years in the event you are audited, while others say you should keep them for 21 years. Either way, you will need files, envelopes, and/or boxes to maintain all of these documents.
Then, if the tax man comes, all you have to do is retrieve your records—and you’ll be all set to get the job done. No more hunting down old phone bills, searching through emails, or calling to ask for duplicates of forms you already received once.
While the constant drip of paperwork—and filing it properly—may seem annoying at first, it will eventually become a habit. And, when tax time rolls around, you won’t be faced with the daunting task of recreating your entire year.
Paper File Storage and StorageMart
Good record keeping can solve a lot of problems, but it can also create one—a house or business that’s running out of space. No matter how clean or cheery your environment is, it will seem chaotic and cluttered if closets are overflowing or file boxes are stacked in offices.
If this sounds familiar, the good news is there is an easy and affordable solution that requires no long-term commitment. At StorageMart, we pride ourselves on our clean and well-lit self storage units that are available to rent on a month-to month basis. Check out our storage unit guide or rent a unit online today.