How To Setup Your File Cabinet For Tax Season

It’s that time of year again.  You guessed it, tax season is upon us and April 15th is fast approaching.  If this sent a chill down your spine you will want to read this post.  Today I’m going to talk about getting prepared.

I’m going to share a simple system with you that will save you a lot of time and make it easy for you to stay on top of your taxes and keep your file cabinet in order.  I’ve been using this system for years now and once you see how it works I’m sure you will see how this could benefit you.

But first…

A Few Things You Will Need.

First off you will need a sturdy file cabinet.  For me a simple two drawer file cabinet will do.  I like the hanging files the best but whatever suits you is fine also.

Second, file folders that hold up.  I like the hanging file folders as I talked about above.  They seem to hold out and last longer.  Although you can go with whatever you like here too.

Finally,  labels or a labeling device.  You will need to label the files in some way.  If you like the labeling device because it keeps things more organized for you or if you like writing your own labels out then do that.

It doesn’t matter what type of each of the above items you use as long as you have those three item.  Now with that out of the way on to the system.

How Set Up Your Filing Cabinet.

First, you will need label your fie folders in order to keep everything in order.  If your use to just throwing everything in one folder and dealing with it all later or worse shred or burn everything you have to change this.

For that reason it’s a good idea to hang onto all receipts, bills, statements, and of course your W-2 statments and all other tax filings.  At the time of writing you should keep all your statements for at least 7 years and your tax documents FOREVER!  Never shred, burn, or lose your tax documents.

Now what should you name the files?

I keep all of my files in very basic and general categories.  Here is what I label my files as.

• Misc. Bills.  These are odd and end things I might have a receipt for.
• Credit Cards.  All credit cards are filed here including department store card statements.
• Phone.  This would include home phone and cell phone.
• Pay Stubs.  Any income I earn the pay stubs will be placed here.
• Banking.  All bank statements and things we get from the bank will go here.
• Mortgage Statements.  Any statement from your mortgage, HELOC, or others are placed here.
• Insurance.  Any insurance documents you receive throughout the year including life, health and others.
• Television.  All TV bills and also Internet bills go here.  Now if your cable is like mine I have my cable TV, home phone, and Internet all in one.
• Electric.  All electric bills go here.
• Health.  Anything from going to the dentist, the doctor, or filling a prescription goes here.
• Gas.  Whether you run gas to heat your home, use electric, place those bills here.
• Auto.  Any auto repairs, oil changes, body repairs, or even a gas receipt goes here.
• Investments.  Any 401k info, Roth IRA, IRA, Mutual Fund info should be placed here.
• Taxes.  Any county, state and federal tax info should go into this folder.
• Town.  If your town provides you water and sewer place that here.
• Giving.  Don’t forget this one.  If you have donated money to any cause or organization or place of worship you can put that here.  Anything in here is a great added tax deduction.

This how I label my files but you may have yours set up similar or may need to add a few.  Also you may need to add a few folders if you own a business.  I recommend keeping all business and personal receipts and statements separate even if your business is a sole proprietorship.  This will come in handy for adding extra deductions to your taxes.

How To File Your Old Statements?

After the first of the year you will want to empty all of your file folders for storage.  So usually after the first of the year I will generally clean out all of the file folders separately putting a rubber band around each group.  For example everything in the phone folder will be rapped in a rubber band.

Finally, placing each stack into a cardboard box.  I like this method that way if I have to look something up I don’t have to flip through a bunch of papers I can flip to the stack I need and go from their.

Once everything is in the box I label the box to the correct tax year.  For example this years taxes are from 2008 not 2009.  Then simply place in a safe and secure place that doesn’t get wet or won’t get stolen.

That’s it!

If this sounds to simple to you that’s because it’s meant to be.  I’ve learned in life that we tend to take the simplest route.  So start now before you burn, shred or lose another statement.  If the IRS happens to show up on your door step you will at least be prepared.

To a great tax season,

Chris

This post was recently post on The Carnival of Personal Finance #190 by Funny About Money.