[This guest post is courtesy of insurance and finance writer Chris Martin.]
Most Americans aren’t very fond of tax season. It usually requires sifting through mountains of receipts and stacks of papers trying to compile everything for their tax returns. And they don’t enjoy paying accountants to do it for them.
This process wouldn’t be as cumbersome or energy-sapping if Americans were able to adequately organize their tax documents. So make a resolution to inject some organization into your tax-related files—if not for this year, then for all of the future years, when you’ll have to repeat this process. Here are a few suggestions:
- Keep them all in one general location. Don’t scatter your federal and state tax documents all over your home. Some people spread papers, forms, and receipts among a few filing cabinets and/or rooms. Having to track down all of these documents makes tax season that much harder. So centralize your tax documents in one room, closet, or cabinet.
- Keep your tax deductions together. For many people, this involves donations to charitable organizations. So gather up all of the receipts you received from your charitable giving (and be sure to fill the blank ones out, like for Goodwill and other similar groups) and place them inside a single folder. If you have other deductions that you report each year, put their related paperwork into this folder as well.
- Separate your business tax documents from your personal ones. Your small business checking accounts should never mingle with your personal checking and savings accounts. Not only does this prevent a major headache when it comes time to begin filing your taxes, but it also protects you in the event that your business is sued for one reason or another (this protection is called the “corporate veil”). If you give the impression that you have been interchanging personal and business funds, you may put yourself and your family at risk because a plaintiff could seek to go after your personal assets.
[Learn more about the corporate veil and how courts might pierce it.]
- Maintain a “fixed asset” folder or binder. This is where documentation concerning all of your big assets—such as your home, cars, boat, and other major purchases—will be stored. You don’t want to combine these records with the others in the year that you bought the asset; otherwise, you’ll be forced to dig into those files to find these documents in the future. Instead, keep these records in a spot that can be accessed without much trouble.
- Label your records and files intuitively. In most cases, labeling takes care of itself, but sometimes, you may have to clarify which records are in a given folder because you’re likely to forget in the future. So instead of labeling a folder “Smith and Associates,” put “401K Records” on it—and write phrases like “Child Care Expenses” instead of “Mrs. Laidlaw.”
- Keep some documents forever. Periodic statements pertaining to brokerage accounts, investments, and retirement plans should be kept indefinitely. You should hold on to asset-related paperwork for as long as you own the asset. Canceled checks written for purposes that fall into these categories should also be stored forever. These documents can be placed in an out-of-the-way area if you wish.
Don’t get behind on your financial paperwork and tax documents—just a little extra effort throughout the year can save you time and stress during tax time, leaving you more time to grow your business!
About the Author:
Chris Martin is a freelance writer who writes about topics such as auto insurance, consumer finance and entrepreneurship.