How to Organize Your Tax Documents for the New Year

organize tax documents

The information in this article is up to date through tax year 2019 (taxes filed in 2020).

If you’re like many Americans who resolve to get organized in the new year, consider starting with your tax documents and how you store them. Your tax situation will determine exactly which documents you need to maintain and for how long. Being able to easily access these documents will not only bring you relief but will also make filing taxes easier.

Store your documents in the Cloud

Cloud-based document storage solutions like Google Drive, DropBox or OneDrive make this process much easier than just keeping paper copies. Storing documents digitally is secure and makes finding them simple. Digital copies are also immune to certain risks paper copies face like fires and floods.

Be aware that even these online storage systems are dependent on internet connections and can be susceptible to hacking so it’s best to have a storage strategy that combines online options as well as hard copies as a best practice. This may even include a safety deposit box to securely store your most precious documents.

How can I organize my tax documents?

While some documents like income history and social security statements should be kept for years, other documents are only necessary for a few weeks or months. Whether online or on paper, use folders to organize documents based on how long they should be kept. Create these suggested folders:

  • Short Term
  • One Year
  • Several Years
  • Forever

Keep in mind that some people prefer to keep all documents while others like to keep their folders lean. Think of these categorizations as minimum requirements – of course, you can keep them longer if you want.

Documents to keep short-term

Documents in this folder should only be kept as long as they remain relevant. Things like unpaid bill payments or receipts for purchases that may be returned fall into this category. Once a bill is paid, the receipt may be necessary to keep a record of but the bill itself is only needed until the payment is actually made.

Most retailers will only honor returns if the original receipt accompanies the product and the product is still in excellent condition. Once you determine that you’ll keep a product, or in the unfortunate case that the product gets destroyed, feel free to get rid of those receipts unless it’s a large purchase that you could sell again.

Documents to keep for one year

Some documents will be needed for various tax purposes each time you file. Documents in this folder are kept in order to file taxes but can mostly be purged once that process is done. Things in this folder will include bank statements, insurance declarations, health benefit information, receipts from bill payments and expense reimbursements.

Bank statements may need to be kept longer than a year depending on if they are needed to support other documents. Insurance declarations should be kept as long as they are active, or until they are renewed and new statements produced. For those receiving a 1099, expense reimbursements can be plentiful and may require sub-categories broken out by month or expense type (travel, home office, equipment, etc.).

Documents to keep for several years

Documents in this folder should be kept for three to four years, but many save up to seven years of history to be safe. These include tax returns, pay stubs, social security statementsinformation around your budget and other data to reconcile that.

For tax returns, you’ll want to keep at least the last three years’ returns. Pay stubs are only needed until the form W-2 is reconciled, but also will be crucial for contractors when filing their taxes as well. You’ll only need one social security statement on file so once you receive a new, updated one, feel free to get rid of old ones if you wish.

You’ll also want to keep a few years of historical forms regarding your taxes such as Schedule(s) K-1, Form(s) W-2, Form(s) 1099, Form(s) 1098, Form(s) 2439, Form(s) 5498, mortgage or student loan interest, mutual fund and retirement plan statements, and charitable donations.

Documents to keep forever

Some of your most important documents should never be deleted unless they are updated with new information, and even then, you may want to keep the older versions for historical purposes. These items are not necessarily needed for tax filing each year but should be preserved for if they’re needed for other things. These documents include:

Household Inventory Will and/or Trust
Education Records Birth Certificates
Life Insurance Marriage Licenses
Divorce Decrees Social Security Card
Family Health Records Power(s) of Attorney
Military Service Records Passports

Now that you have a better idea of what to keep, how long to keep it and how to store it, get your 2019 started on the right foot and position yourself to keep your resolution of getting organized.

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