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How to Organize Your Tax Documents


US tax forms
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The Problem: How to Organize Your Tax Documents

Does April 15 throw you into a frenzy every year? Do you procrastinate when it comes to pulling all of your tax documents and receipts together? Each morning, do you resolve that today is the day you are going to tackle your taxes, but then each day ends with the task still unfinished? You are in good company. According to the IRS website, more than 10.25 million individuals file tax extensions each year.

Organize your tax documents and reduce the stress associated with filing your tax return.

The Challenge: Create a System to Organize Your Tax Documents

Take one hour this weekend and get organized. Use this step-by-step solution to establish a simple system to organize your tax documents.

Tools Needed to Organize Your Tax Documents

  • 10" x 13" Envelopes
  • Small 5" x 7" Spiral Notebook
  • Highlighter
  • A 16-quart Plastic Storage Bin or Drawer

Step One: Create Envelopes by Tax Category

Write the tax document categories identified below on the front of a 10" x 13" envelope.

Income - documents to be filed in this category include:

  • W-2s
  • 1099s
  • Dividend Statements
  • Earnings Statements
  • Monthly, Quarterly and Year-end Investment Statements

Deductions - you can put all deductions in one envelope or you may choose to use separate envelopes for each category below:

  • Charitable Giving
  • Expenses - non-reimbursed business expenses, job-related and job search expenses
  • Medical Receipts
  • Property Taxes
  • Energy-Saving Home Improvement Receipts
  • Child-Care Expenses

Store the 10" x 13" envelopes in a 16-quart plastic bin or plastic drawer.

Step Two: Organize Tax Documents as You Receive Them

Throughout the year as you receive tax-related documents, drop them into the appropriate envelope. As you add an item to an envelope, list it along with the corresponding dollar amount on the outside of the envelope.

Receipts for expenses or deductions should be handled carefully as they tend to fade over time. Make a copy of each receipt and file the copy in the appropriate envelope. While this adds a step to your tax document organization process, you'll be glad you did it. CPAs and IRS auditors aren't particularly fond of blank receipts.

For receipts that include multiple items, be sure to highlight the specific item(s) to be deducted. You might also consider making note on the receipt of the specific reason for the expense. For example: on a receipt for a deductible business lunch, make note of the reason for the lunch and who was present.

Step Three: Organize and Track Your Mileage

When it comes to mileage, you can deduct:

  • non-reimbursed miles driven for business purposes;
  • miles driven for medical or moving purposes; and
  • miles driven in the service of charitable organizations.

Visit the IRS website for information on mileage rates for the current year.

Use a 5" x 7" spiral notebook to track your mileage. Keep it in your car at all times.

Each time you drive your car for one of the above reasons, make note of the following in your notebook:

  • Date
  • Purpose of trip
  • Beginning odometer reading
  • Ending odometer reading
  • Total miles driven

At the end of each month, total the miles driven that month and year-to-date.

Step Four: Prepare Your Return

Whether you prepare your tax return yourself or have someone else do it, gathering all of the necessary and required documents is quick and easy now that all of your documents are organized by category and stored all together in one location.

Once your return is complete, keep a copy of it along with your corresponding document envelopes for that year.  In the event of an audit, you'll have everything you need all in one place.

Ongoing Maintenance

Repeat this step-by-step process each year. April 15 will no longer be a stressful day now that you know how to organize your tax documents.

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