Each year around tax time, I go through all of our personal receipts, bank statements, household utilities, and medical bills/receipts in an attempt to stay organized.
By staying on top of this and doing it just once each year, it’s easier to find the information we need when the time comes for filing taxes.
Now it’s a breeze to find the appropriate support documentation for our tax forms — and for the accountant — each year.
I thought I’d share some of the time-saving tips I use to keep all of our personal, household, and tax info organized, including:
- How long to keep things for taxes and which things to keep
- How to organize all the paper that must be saved
- How long to keep tax documents that have already been filed
- How to find the right shredder for the items you don’t need to save
What Must Be Saved
You don’t need to kill lots of trees to maintain good records. The IRS allows electronic storage systems as long as they provide an accurate and accessible record of the data. Rosenberg recommends scanning your documents onto your computer then backing them up on a CD. Source
Store Receipts – I keep every single store receipt in an expandable file folder in my desk drawer. At the end of the year, I go through it and decide which receipts I need to keep and which ones I can shred. The ones to keep are those that are needed for tax records (such as deductible expenses) or for proof-of-purchase (such as items still under warranty).
Some people like to have a physical receipt for every single item purchased — even if it was bought online. In that case, you’ll want to take the time to print a receipt for every online purchase you make — then store it in a folder labeled “Store Receipts”. On the other hand, some (like my husband) prefer to rely on credit card statements which summarize all of your purchases (including those made online) instead of keeping all of the individual receipts as documentation. According to our accountant — and the IRS — both methods are acceptable.
Utility Bills – These simply provide proof that you resided in a particular location for a specified length of time, you paid your bills on time (or not), and if you take a home-office deduction they provide support documentation for your taxes, among other things.
Bank Statements – Since these can be used as documentation for many of our large purchases, I keep them all. These days, you can also obtain copies of your bank statements directly from your bank, if needed. But I still keep all of our printed bank statements, so that I can see our purchases on the fly — if I should ever have a question.
Credit Card Statements – In addition to keeping these as a way to verify duplicate charges and items that we’ve returned for a refund, I keep them all since they can also be used as documentation for the majority of our daily purchases. As with bank statements, you can get copies directly from the credit card company, but I like to have everything at my fingertips should I ever need it.
Medical Bills – Since both medical institutions and insurance companies are involved (in addition to what you personally pay toward your medical expenses), it’s important to keep your medical bills well organized. We write the date and check number on all medical bills that have been paid, and store them chronologically in a file folder. At year-end, all bills paid in that calendar year get filed with that particular tax year, and any unpaid bills get moved to the next calendar year.
Pay Stubs – Hold onto these throughout the year, until you receive your W2 at year end. As long as the amount on our W2 is correct, then you don’t need to keep those previous pay stubs any longer.
Investments – Keep all paperwork associated with buying, selling, and trading investments — even after you sell them. However, once you receive an annual statement, you can shred any routine monthly or quarterly statements received before that.
Donations – Place all receipts for charitable contributions — including Goodwill donations, etc — in a file folder labeled “Donations” and go through them at year end.
Home Purchase/Sale/Improvements – Keep these receipts and associated paperwork in separate folders labeled “Home Purchase,” “Home Sale,” and “Home Improvements.” They are important within the following guidelines:
- What’s Deductible When Buying A Home
- What’s Deductible When Selling A Home
- How To Use Home Improvements As A Tax Deduction
- Real Estate Taxes, Mortgage Interest, Points & Property Expenses
If you sold your previous home after May 6, 1997, you only need the records for the purchase of your current home. You will also want to keep receipts for any improvements or additions made to your home, since this increases your investment (basis) in the property and may reduce your profit and tax, if any, when you sell. Source
How Long To Save Things
I know that some things technically only need to be kept for 3 years, and some things only 1 year, but I don’t have the time or patience to create a paper storage system with varying timeframes for removal.
Using my method, every year I can quickly eyeball the stack of paperwork that has been saved longer than 7 years — which can now be shredded and removed from our home. It may take a tiny bit more space in the long run, but it’s the simplest method in my opinion. Besides, as you can see in the above photo, it only takes one empty crate to hold the past 7 years worth of paperwork anyway!
Technically, the completed tax forms themselves can be shredded and disposed of earlier too. But as you can see in the photo, I am holding onto every single tax form that we’ve completed — minus all of the supporting documents — simply because it’s a part of our past (individually and together) that I personally want to hold onto.
If Jim had his way, those things would have been shredded long ago, but hey — I’m a scrapbooker and a keeper of personal memorabilia for sentimental reasons. Those old tax forms have a lot of history in there — from our first jobs (and what we were paid back then!) to our personal businesses (including start and stop dates that I’ll never remember myself) personal residences, and more.
Besides, you can bet if we ever did get audited, I would want to be able to go back to prior tax years and reference what we did before, or how we did things differently back then. (Perhaps that’s just my overly-organized way of looking at things, but it works for me.)
There are some situations where you will need to refer back to your older tax returns for much longer than that [6 years]. Three examples are: when you own a home, have a non-deductible IRA contribution, or you have business or rental property that you are depreciating over a number of years. Source
Some experts recommend you keep copies of tax returns forever, because they provide a record of your financial history. You may need previous returns to apply for a mortgage or student loan. Source
And, believe it or not, some stuff should be kept even longer than 7 years!
How To Organize Everything
Both types of folders hang nicely in large desk drawers using file folder drawer frames. But truthfully, you don’t even need the drawer frames, since file folders of the same size (either letter size or legal size) will stack neatly together within any drawer.
For folders that will hold large, bulky forms (like credit card statements) or a lot of paper (like our “Store Receipts” file), I use accordion file folders instead of regular ones.
And then I have 2 large plastic crates (pictured above) that hold the following:
- All of our completed tax forms (from the last 7 years… and more!)
- Supporting documentation that goes with the last 7 years’ tax forms
The completed tax forms are stored in the folders or envelopes that our accountant gives them to us in.
The support documents are stored in manila folders. (Each year has 4 envelopes: “Utilities” “Bank Statements” and “Credit Card Statements” and “Misc”)
It’s worth noting that, in addition to routine tax papers, we also have an accordion file folder that contains all of our vital documents.
In yours you might have things like:
- Marriage certificate
- Divorce papers
- Birth certificates
- Adoption papers
- Bankruptcy papers
- Estate papers from relatives
- Citizenship papers
- Military service papers
- Government bonds
- Social Security cards
- Voter registration cards
- Death certificates
- Car titles
- Patents or copyrights
- Other government or court-recorded papers
Copies of these items should be kept in your home, while the originals should be stored off-site in a safe location — like a safe deposit box at the bank. Don’t forget to include a household inventory list (or video) and a list of all of your important accounts.
And last but not least, you’re going to need a paper shredder!
With input from Financial Advisors, (a Tax Accountant and an Investment Manager), I share helpful tips regarding money and finances — including debt relief, insurance, budgeting, and investing for retirement. My goal is to help you save more, spend less, and invest for the future by sharing honest, tried & true budgeting tips and tools. When I'm not saving for the future and helping others save for theirs, you can find me at the corner of Good News & Fun Times as publisher of The Fun Times Guide (32 fun & helpful websites).