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Blog: Minimizing Financial Clutter
Quick and Dirty Ways to Organize Financial Paperwork

Put down those matches! I'm sorry to be the bearer of bad news, but there are some papers that Uncle Sam strongly discourages you from torching.  In a nutshell, those documents are any papers that would:
  • identify any taxable income,
  • support any deductions you take on your tax returns,
  • track how much you paid for your property and the cost of the home improvements you have made, and
  • track your gains and losses from investments.
For the specific IRS rules on recordkeeping for individuals, go to http://www.irs.gov/pub/irs-pdf/p552.pdf
If you are audited, you will need to produce those records for the year for which you are being audited.  If you don't produce the documents that support your income and deductions, you could have to pay more tax (ugh) and penalties.  Why not go ahead and organize them in a "quick and dirty" way, just in case that happens…  Pick the solution that best fits your situation:
"My tax supporting documents are pretty well-organized and in file folders, but they're not organized by year."
Quick & Dirty Solution:
You'll give yourself a lot more room in your file cabinet if you remove all of the tax-related papers from previous years.  Only keep the current year's documents in your current file system.
  • Purchase 6 expandable file folders (the kind with the accordion-looking bottoms and sides)
  • Label one of the folders for each of the 6 previous years.  (Example:  Tax Supporting Documents – 2006)  Please note:  You need to keep your records for 6 years after you file.  If you filed late, therefore, you will need to keep more than 6 years' worth of records.)
  • Starting with the top drawer of your file cabinet, remove all papers that supported your tax returns and place them in the appropriate year's expandable folder.
  • Store your tax supporting documents in case of audit.  You can keep them in a closet or a file box; they don't have to be right next to your desk.  Hopefully, you'll never have to look at them again!
"I don't have a centralized place for my paperwork now.  I have papers in several different areas of my home."
Quick & Dirty Solution:
Friend, it is time to centralize!  Choose a room to use for paperwork processing and storage.  We'll call it Paperwork Central
  • Gather loose papers (not already in file folders) in open bins and take the bins to Paperwork Central
  • Gather all files in folders from other areas of your home and take them to Paperwork Central.
  • Arrange a row of empty storage boxes along a wall.  Label the boxes as follows:
    • Current Year's Tax Supporting Documents
    • Tax Supporting Documents (one box per year for at least the past 6 years)
    • Property (for all papers related to your home)
    • Investments (for all papers related to your investments)
    • Personal (for papers you want to keep, but that don't belong in any other category)
  • Start with one bin of unsorted papers (or files in folders).  One by one, distribute the papers and files among the empty storage boxes.  Repeat until each unsorted bin is empty.
  • For all the boxes except the Current Year's Tax Supporting Documents, put lids on the storage boxes and store them in a closet.

What should you do with the Current Year's Tax Supporting Documents?  I'll tell you next week.

posted on: 11/4/2007 11:30:00 AM by Katherine Trezise
category: Finances

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Minimizing Financial Clutter

by Katherine Trezise

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About Katherine:

Katherine Trezise is president of Absolutely Organized, based in Baltimore, MD. She is president-elect of the National Study Group on Chronic Disorganization. Katherine holds a masters degree in business administration, is a Certified Professional Organizer® and a Certified Professional Organizer in Chronic Disorganization®. Absolutely Organized specializes in helping people organize their homes, paperwork and financial records to make room in their lives for the things, people and activities that are most important to them.

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