In the middle of a nasty tax audit myself (about a deduction I took five years back), I know the importance of a great filing system for all that paper. Me, I use the binder method (part of being a project girl, binders are easier to lug to board meetings, and tabbed the papers are quicker to flip through and find information).
But rather than me going on about my rather challenged system, I thought I’d ask organizing guru Jessica Duquette of It’s Not About Your Stuff about her system.
Jessica - “It's frustrating to realize that if we get audited and we don't have the right paperwork, we can suffer penalties levied by the IRS and even go to jail if our transgression is bad enough, but nowhere in the tax law is there a record retention schedule for us to follow! I have developed a beautifully simple and effective archiving system that works really well for my clients and costs around $50 up front to implement for life.
Here are the supplies you will need: (please get these exact items)
1 plastic file bin with a snap on (not clamshell) lid.
2 packages (4 each) of accordion hanging file folders (total 8 folders)- letter or legal, depending on your files
7 clear file tabs (the little ones that fit into the hanging file folder)
Simply put 7 accordion hanging file folders in the file bin and label them the previous 7 years. (i.e. 2006, 2005, 2004, etc) Put any archive tax back up material you may run across, by year, into the respective folder. DO NOT put the tax return itself in this system!! You will need to keep those in another location, as according to the IRS, you will need to keep the actual returns FOREVER. At the end of each year, you can simply pull the oldest file out, shred it's contents and use that folder for the current year's taxes.
This file bin can be kept in your garage, attic, basement, storage space, remote closet,etc. as you will (hopefully!) only need to access it once a year.”
For more helpful hints, visit Jessica at It’s Not About Your Stuff.
