In honor of the year coming to an end, it’s time to start thinking about taxes! Although I don’t love thinking about taxes, it has gotten easier since I put forth the time and effort to learn about what to keep and what not to keep as well as easier ways to keep it all straight. I am excited to share it with you in what I call, income tax filing made easy, although income tax filing made less stressful may be a better title.
Taxes don’t have to be complicated. While I don’t file my own taxes, I am responsible for having my information together to give to my accountant. For years I struggled with knowing what to keep and what to throw away. So, I finally figured it out. Since then, getting my taxes together has become so much easier.
Here are my tips for income tax filing made easy!
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This is a list that my friend and I compiled a few years ago. She is a CPA, and I wanted to know what I needed to keep and for how long for tax purposes. It was so crazy. For years I would call her with a specific question about whether to keep this or that. Finally, I just got smart and made a master list. Duh.
In general, you can only be audited on your return for three years
Notice I said “in general,” because if red flags have gone up and the IRS has reason to think you have been violating tax laws or underreporting for some reason, they can go back six years. For this reason, my friend recommended that all tax paperwork be kept for seven years.
With this in mind, these were her recommendations. By all means if you have a CPA to consult, please do, but if you are looking for a place to start, my CPA friend has never steered me wrong, and I was able to purge a ton once we went through this list, namely, pay stubs!
Keep all expenses for a tax year in a folder labeled with the year, that way it will be easy to purge each year
This would include:
- dividend and interest statements
- medical expenses if you deduct them
- mortgage interest statements and refinancing information
- bank statements for anything tax related like charitable contributions or interest earned
- credit card statements for anything tax related in any way
- anything else that you itemize on your return
- of course income and expense receipts if this applies to you
We also made a separate list of the things that should be kept forever
This would include
- tax returns
- retirement plans or interest earned statements, college investing, stocks, bonds, or any other investment documentation
These are the things that she said I don’t need to keep. Some may surprise you
This would include:
- quarterly investment statements, you only need year end statements
- pay stubs—as long as they are the same as the amount shown on your w-2, you can pitch them. So, do keep them until you have a w-2 to compare to
- expired insurance information, especially health insurance information
- other random bills. I do keep most monthly bills for awhile, especially because I like to compare costs from year to year, like on my gas etc., but I do purge these files each new calendar year.
So often April 15 is a stressful enough time on its own, but this list should help you keep your documents organized to at least relieve some of that uncertainty and stress.