How To Organize Your Federal Tax Records

Every year we all need federal tax records for when we complete and file our annual tax returns. By keeping financial records in an orderly and organized fashion, it makes completing tax returns an easy and simple process, whether you use a tax consultant, accountant or tax preparation software to complete your returns.

Recommended Records

There are several financial records you should keep throughout the year. These include records that prove your income, including payroll stubs, stock or investment reports and copies of any spousal support received.

You should also save any supporting documentation for expenses that can be deducted from your annual reported income. These documents include mortgage interest statements, tuition expense receipts, receipts for charitable contributions, copies of checks for spousal or child support payments and any other documents that support any annual deductions.

Organizing Your Records

When you organize your tax and financial records, the easiest method is to create a filing system that is easy to use and actually divides up and even records your documents in one simple, easily accessed place.

There are several software programs for personal finances that can assist you when it comes to gathering your financial information when it comes to completing your tax returns. Popular personal financial software includes QuickBooks, Quicken and Microsoft Money. These programs allow you to enter information about your spending as it happens and then run reports giving you totals either throughout the year or at the end of the year when you need to have totals in each category for your deductions. In some cases, you also have the option of running a report that projects your tax obligations across the year, so that if needed, you can set aside any additional money you may need for your taxes when they are due.

Here are the steps to organizing your physical records, so that they are accessible if you choose to keep your records manually or should need them in case you are audited.

Step 1

The easiest method is to set up a folder or section for each type of record you are keeping. You can do this with separate file folders or with an accordion folder system. If you are using an accordion system, it may be worthwhile to have two folders – one for income and one for expenses/deductions.

Step 2

Label each folder with the different types of records – paystubs, mortgage interest statements, spousal support checks, etc.

Step 3

Place the records in each folder as you accumulate them throughout the year. For documents that have a large quantity, you may want to make monthly folders or monthly envelopes that are kept in each folder.

Step 4

When the year is completed and you have added up the different documents for your tax return reporting numbers, take a large manila envelope and place all of the documents for each section or folder in the envelope and write what type of document it is on the outside, including the year. Once you have all of your envelopes completed and the records placed in the envelope, then place all of the envelopes in a large bankers box and store it.

Reuse your original folders for the new upcoming year.

Summary

Organizing your financial and tax records makes completing and filing your federal tax returns easy and simple, even if you discover that you will owe taxes. By using some simple file folders and keeping track of all of your documents through the year, it is easy to gather up your documents and compile the numbers you need for your annual tax returns.
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