Depending on your situation, you could have hundreds of documents and receipts to report for tax purposes. The IRS says you can use any record-keeping system you choose, as long as your income and expenses are clear, accurate, and include all necessary details.
Here are some basic ideas to help you keep your records straight, so they’re easy to locate if the IRS needs them.
Organize by category
It’s easy to lose a piece of paper – especially when you have lots of other loose documents floating around. Using file folders is an age-old method to stay organized, and it’s extremely effective. Pick up several folders from an office supply store and label them each by category. Then, when you get a bill, a receipt, or an official tax document, make it a habit to put it in its place immediately.
Label folders with the following categories. It’s possible you’ll have fewer categories or different labels (but this is a good start):
- Income (like a W-2 or 1099)
- Medical expenses
- Banking info (mortgage, student loans, investments, retirement savings, etc.)
- Child care receipts (if you have young dependents)
- Home and property
- Charitable donations
If you have self-employed income from a side gig or small business, you’ll also have categories like:
- Business income
- Business expenses (this might even be broken into smaller categories)
Scan or photograph your docs
If you tend to lose papers, here is some good news: the IRS will accept scanned and/or digital receipts for tax purposes. That means you can snap photos of your loose receipts with your smartphone. Be sure to get a clear picture of the entire receipt and that you can see the date, address of the business, and total purchase amount. Alternatively, you can purchase a receipt scanner (available at any office supply store) and save the digital copies on your computer.
Your digital files still need to be orderly in case the IRS has a question, so use a receipt tracking app to organize and save your images. There are several receipt tracking apps to choose from. Find one that works for you and stick with it.
Tip: Keeping your records organized will save you time when you file your return. So will filing your taxes electronically. Here are 5 reasons to file your taxes online.
Write notes on your receipts
If you are reporting 1099 income and deducting job-related expenses, your receipts will need to include the amount, location, date, and type of expense. Let’s say you met a potential vendor over a business lunch. To write off your meal expense, your receipt will need to show the name of the restaurant, the location, the date, who attended the meeting, the total paid, and a note to indicate that it was a business lunch to discuss vendor opportunities.
Make it a habit to note any important details directly on the receipt, then put the receipt where it belongs right away, so you don’t miss any expenses when you file your taxes.
How long should I keep records for my taxes?
As a general rule of thumb, you should hang on to your individual federal tax records for three years after you file. The IRS outlines the unique scenarios where you might need to hold onto your records for longer periods of time. You can read those here.
What kind of records should I keep for my taxes?
Everyone’s tax situation is unique, so the exact records you’ll need to have on hand will depend on things like your job, your family, where you live, and how you spend your income. This tax prep checklist should give you a good idea of the documents you’ll need to keep on hand for tax time.
Can I use a bank or credit card statement instead of a receipt on my taxes?
No. A bank statement doesn’t show all the itemized details that the IRS requires. The IRS accepts receipts, canceled checks, and copies of bills to verify expenses.
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The information in this article is up to date through tax year 2020 (taxes filed in 2021).