Now that you have filed your taxes for last year, it's time to finally go through all of your paperwork, organize the mess, and shred those documents you are not required to save. If you have been putting off this task by using the excuse that you don't know which papers you are required to keep, then you have come to the right place!
To complete this project, you will need eight folders, a pen, and a shredder. Yes, it really is that simple.
File Folders for Organization
To start this project you need somewhere to place your paperwork for each year as you sort through it. Mark a folder for each of the past 7 tax years. The eighth folder should be for this current year's taxes.
The Quick Sort
Rather than reading each document, determine quickly which tax year it corresponds to and place it into that folder. This year's folder is used to place items that you will need to complete next year's taxes. This will keep everything you need all in one place. When it is time to visit your accountant's office next tax season, all you will need to do is grab this folder and go to your appointment.
IRS Record Retention Rules
According to the IRS's record retention rules, you are required to keep copies of your tax returns and supporting documentation for a total of three years. However, if you file any losses for bad debt or worthless securities, then you need to keep your returns and corresponding paperwork for seven years.
The Final Sort and Shred
Starting with last year's taxes, you should save a paper copy of:
- your state tax return
- your federal tax return
- all proof of income (W-2, 1099, etc...)
You should also save copies of any communication between yourself and the IRS, such as overpayment or underpayment notices.
Everything else you should send through your shredder. This step is vital to help protect yourself from identity theft. You can recycle the shredded paper at your local recycling center or use it for mulch in your garden.
Conclusion
By taking some time today to organize your box of tax paperwork, you can start this new tax year off on the right foot. Imagine only having to pick up one folder and deliver it to your accountant next year. No more last minute rummaging through boxes and mail. And, your accountant—like those at Herman & Cormany—will thank you!
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