The IRS says it expects to receive more than 150 million tax returns this year, including as many as 13.5 million requests for extensions. If you’re not among those 13.5 million and filed your taxes on or before this year’s April 18 deadline, you deserve congratulations. But before you take your victory lap, spend a little time putting everything away correctly.
Instead of just shoving your tax papers into a box or file folder, take a few minutes to make sure your file is complete and to weed out duplicate forms. Also, put like documents together so that if you need something later, you’ll be able to find it quickly. None of this should take very long, but it is worth doing while the details of your return are fresh in your mind. Some people also find it useful to scan their returns, as well as some of their backup materials, and file the documents electronically by year so that they can easily reference them when needed.
Once you’ve sorted and organized your papers for a final time, place them in a clearly labeled file folder or box and store them somewhere accessible until you receive your refund or until your check is cashed. Once you’ve received confirmation that your return has been processed, move the paperwork to deeper storage and keep it with your other returns. (More on how long to keep those returns below.)
I prefer to keep tax files in a sealed plastic container, but a cardboard filing box also works well, as does an extra filing cabinet. But don’t waste useful space in your working file cabinet with tax documents that you will access infrequently.
And when you add your 2015 documents to your collection of filings from previous years, remove the oldest year’s file and shred the contents. I am frequently asked how long it’s necessary to keep tax documents. The IRS website says three years as a general rule. But if you’ve left out some income that should have been reported, it says you should hold on to documentation for six years; the government can still come after you. If you don’t file a return or file a fraudulent return, you should keep any tax documents indefinitely.
There are a couple of other exceptions to the three-year rule: If you file a claim for credit or refund after you filed your return, keep your documents until two years after the tax was paid; and if you file a claim for a loss from worthless securities or bad-debt reduction, keep your documents for seven years.
If you own a business or had a unique financial situation in a given year, these limits don’t apply; hold on to your documents a little longer.
Vow now to be more organized during the remainder of this year to give yourself a head start in 2017. For instance, start a spreadsheet to track expenses such as charitable donations, medical expenses and other potentially deductible items. Update your spreadsheet once a month or even once a quarter.
Now is also prime time to label new file folders or to designate an inbox for tax-related documents for the current year. Not only will this help you cut down on paper clutter in the coming months, but it will also make tax preparation much easier in 2017. Keep a copy of your 2015 return in your new files for reference next spring.
No one likes tax time, which is why most of us do our best to forget about it until we absolutely have to think about it. But with just a little bit of organization and maintenance during the year, next April will be less taxing.
Special to The Washington Post · Nicole Anzia