Image source: https://static.irs.com/field/image/copy_past_tax_return_prior_year_transcript_request.jpg
Whew! The tax deadline is behind us! Now, it's time to figure out what to do with that pile of papers covering the desk or dining room table.
Not sure where to start? There is an easy way to archive taxes to ensure that you are within IRS rules. Plus, you don't really have to think about it much each year.
First, purchase a box of two-inch box-bottom hanging folders at your local office supply store. Whether they are colored or not is up to you.
Second, use plastic tabs to label the folders: Tax Year 0, Tax Year 1, and so forth, up to Tax Year 9. The digit indicates the last digit of a year. This archival method is based on removing one year of taxes and replacing it with another year of taxes on a ten-year rotation.
For example, Tax Year 0 will have 2010 tax documents in it, and Tax Year 1 contains items from 2011. Meanwhile, Tax Year 3 will have 2003 taxes in it until this time next year when you will take out the 2003 items and replace them with those from 2013. Or, if you need a place to collect items, take out the 2003 taxes now and start putting receipts into the 2013 folder.
If you dont have tax records going back to to 2003, then leave the folders as a place holder until you have new tax records to put into them.
These folders can contain any documents that might be even remotely related to taxes. For example, I put my medical receipts and bank statements in the respective folder, adding W2s and other items as they come in each January.
Furthermore, I dont adhere to a certain order to the papers in each folder. Instead, I just add all appropriate documents. Then, when it's time to deal with taxes, you know that all your items are in one place.
If your filing cabinet is getting full, you can keep this set of files in a less accessible location due to the fact that you (hopefully) wont have to access it very often.
Finally, label another folder Tax Returns. While tax supporting documentation has a shelf life, the actual income tax return document that goes to the IRS needs to be kept forever.
So when you rotate the files as mentioned above, place the official tax return into this folder. Then you can shred the remaining supporting receipts and documents and put the tax return itself into the Tax Returns folder.
So this year I took out items from 2002 in the Tax Year 2 folder and replaced them with items from 2012. The 2002 return went into the Tax Returns folder and the rest of the stuff went into the shredder.
I find this method useful for most people and simple to use. However, this method of archiving taxes is provided as a suggestion. Because IRS regulations change frequently and because each individual case is unique, I urge you to speak with your accountant or CPA to confirm that this system of archiving taxes will meet with your specific tax situation.
