For many hard working people out there, especially entrepreneurs, professionals, and the otherwise self-employed, March and April can be the most frightful time of year. It’s tax season, and that means tax returns must be timely filed with both the state and federal government, or extensions sought.
What can be terrifying for anyone, but particularly for the people mentioned above, is accumulating all of the records that must be kept to document every last bit of income earned and business expenses spent, and then keeping that documentation organized and stored.
Logic would say that you should keep all of your supporting documentation for the most recent three years. However, you’ll find that many experts will recommend that you keep your records for at least five years. You do not calculate what is “in time” for an audit notification, the government does. You may have forgotten that you had requested an extension, or that you had formed a business partnership and had to amend your original tax return with supplemental forms. In any case, storing your tax documentation for five years is more prudent than only saving it for three.
Needless to say, five years’ worth of W-2s, 1099s, interest income statements, partnership records, corporate income forms, invoices, receipts, etc., is a lot of paper to organize, categorize and store. Here are a few tips to help keep you organized in case the “tax man” comes calling:
Consider gathering and organizing paperwork for monthly report. If you are like most small business owners, professionals, or independent contractors, you estimate and file your taxes on a quarterly basis. Using one or two hours a month tracking your income and expenses gives you both an overview of your business while organizing your documents for your annual tax return.
Consider acquiring a digital paper scanner. A sheet fed automatic scanner will be simple enough to use to run your office supply receipts through before they become crumpled or the print fades. Advanced models, like the Fujitsu ScanSnap S1500, even come with software that allows you to turn all of your tax documentation into searchable PDF files, which simplifies collating them by type.
Hire help to get organized. Perhaps you don’t have the time to organize five years’ worth of records, or even last quarter’s? Delegate the task to a professional such as a personal concierge service to go through your boxes, organize your documents, feed your scanner and electronically organize the results for you, so you have time to focus on growing your business.
Whether you are a working professional or small business owner, make it a priority to keep all your income/expense records organized and complete on a regular basis. Doing so will prevent a lot of headaches down the road.
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