Following was a guest blog featured on RebelleCon (reprinted with permission)
One of my good friends moved to Memphis in December. She is back in town for a couple of weeks teaching a university seminar. We made plans to get together after one of her classes last week. I was so looking forward to catching up over dinner. A few hours before we were scheduled to meet, she sent me a text, “I have a tax appointment at 9am and I have to find [electronic documents] for it… and I don’t know WTF I am looking for. Can we reschedule? Must be a place with wine… cuz I need a drink now.” I suggested an alternate date to meet and I giggled.
I avoid the stress that drives many people to drink around this time of year as they get ready for “tax season”. I believe and promote the idea that tax preparation is a process, not an event. Therefore, I’m never racing toward a tax appointment or a filing deadline. My dad coaches sports and one of his favorite phrases to share with his teams, encouraging them to practice and work out in the off season is “Stay ready, because it takes too long to get ready.” I’d like to share my system for organizing money documents and staying ready for tax season.
I have a file cabinet at home where I store all my financial documents. I have hanging files for documents that fall into one of nine categories. Each of those hanging files have several individual folders for subcategories. I’m old school, so I still like getting paper for money things. Some financial institutions limit the amount of time that you can go back and print statements or charge a fee to reproduce documents past a particular point. I want to be sure that I have all that I need, when I need it, without the fees. I have a “mailbox” inside my home, at the front door beside my keys. I drop mail in the mailbox as I enter my home and open all the mail at one time when I am able to take action – pay bills, review account balances, file the items that I need to keep, or recycle the papers I no longer need.
I use electronic systems as a back-up or to make sure that I get real time alerts and deadline reminders. If you prefer to store things electronically, this system still works, just think of the hanging files in terms of folders on your laptop or tags in your email. One of the hanging files is dedicated to taxes. Within the taxes hanging file, I have one folder for earnings and one for deductions. If using an electronic filing system, be sure to rename the downloaded files so that you can search for “2019 Client ABC Form 1099” instead of the nonsensical file names that are often assigned to digital files.
When I was earning a paycheck, I kept my pay stubs in the earnings folder until I received my w-2 and made sure that everything was reflected properly. Now that I’m self-employed, many of my payments are electronic. I have a folder in my email for each of my clients and I file notification of payment in that client’s folder. If I’m paid by check, I keep the stub until I get the 1099 from that client to be sure that all the payments are included.
Receipts are our friends. ☺ They share details that statements don’t. I pay my personal property taxes in person, with a check, at City Hall so that I can get a receipt. I file that receipt in my deductions folder. All the items that come in the mail that indicate important tax documents are inside also get filed in the deductions folder. Other usual suspects in my deductions folder are thank you letters from charitable organizations, statements reporting mortgage interest and real estate taxes paid, proof of medical expenses and premiums paid. Understand that this is not an exhaustive list of things that can be deducted on your income taxes. Speak to your preparer for a comprehensive list.
These are all the categories in my paper filing system, presented in the order that they appear in my file cabinet from front to back, which represents the frequency that I access the hanging file. I have also shared the length of time that I keep the documents within each category:
I’m not suggesting that you adopt my filing system, although I’m happy to teach you my ways, if you’re interested. Instead, I’m hoping to encourage you to find a system that works for you in hopes that you’ll choose to pick up one new organization habit that helps you stay ready for the tax preparation process, so that you can spend more time sippin’ with friends and less time searching for paperwork in the coming months and years.