I’ve been filing taxes for roughly 20 years now (gulp), and it’s always been a source of stress for me until a few years ago.
I’m sure you can relate, right? Every February/March here in the US we scramble to find all the tax documents we need and hope we remembered everything. Then we either prepare the taxes ourselves or hand them over to a professional and cross all our fingers and toes we don’t owe money this year.
Tax stress went to new heights for me when I started my own business back in 2012. Now I not only had my personal taxes to deal with, but business taxes and quarterly estimated payments and expenses and GAH. It was a lot.
At the end of 2017, I decided that taxes were no longer going to be stressful for me moving forward. Taxes are inevitable, and I’ll have to pay them until I die. The thought of being stressed out of my gourd at the beginning of every year didn’t sound very appealing, so I decided to do something about it.
Organize Your Taxes = Decrease Stress
I switched accountants to one who prepares and files taxes 100% electronically, and let me tell you — it was a game changer. The ease of doing taxes with my new accountant inspired me to organize my taxes on my end once and for all.
I knew if I created a system that I could replicate every year, that stress would melt away, and every year would get easier and easier.
And so far, I’ve been right! Taxes are still (and probably always will be) a pain in the butt, but they don’t cause the anxiety they used to.
Taxes don’t have to be stressful for you either! I’m going to share with you exactly how you can digitize and organize your taxes every year.
Whether this year is the first time you’ve filed taxes or you’re like me and well into your tax-preparing days, these tips will help you get organized and eliminate stress. They also work if you do your taxes yourself or hire a professional.
Before we dig in, I want to remind you that none of the information in this post should be taken as financial or legal advice. I’m not an accountant or a lawyer (far from it), and you should always consult a professional when it comes to these sorts of things.
All right, let’s get into it!
How to organize your paper tax documents
No matter how digitally savvy you are, you’ll most likely have at least some paper documents you’ll need come tax season. I suggest you keep them all in an envelope or an accordion-style folder. You can sort by month, type of document (like expenses, child care statements, etc.), or any other method that makes sense to you. I personally organize by type because I’ve found that to be the easiest method for me. It doesn’t matter the container; just as long as everything is in one organized spot.
(Please refer to an accounting or legal professional to determine how long you should keep these documents.)
Where to store your digital tax documents
Now the digital organization begins!
The first item of business is to determine where to store your digital tax documents. I save mine on my computer hard drive because these types of documents usually contain sensitive information like my address and social security number. I feel better not having that info in the cloud, like on Evernote or Google Drive. But, it’s totally a preference thing and up to you and your comfort level.
TIP: This is a good time to remind you to always have backups of your digital files. I recommend an external hard drive and/or a cloud-based service to keep you covered.
How to organize your digital tax documents
I recommend having five main folders on your computer hard drive, and one of them is Financial. That’s where I suggest you save all your tax documents and returns.
(You can learn more about the five main folders and how to get your entire digital life backed up and organized in my Digital Organization Mastery course.)
Underneath your main Financial folder, I recommend having as few subfolders as possible. Why? Because too many folders makes things way more cluttered and also makes it harder to find files quickly and easily.
Here’s what my folder hierarchy looks like on my computer hard drive:
Financial -> Taxes -> Year -> Personal -> Tax prep documents
Financial -> Taxes -> Year -> Personal -> Tax returns
Financial -> Taxes -> Year -> Business -> Tax prep documents
Financial -> Taxes -> Year -> Business -> Tax returns
TIP: I always keep my personal and business tax documents separate, and I highly recommend you do the same. The IRS will appreciate it as well 😉
How to digitize your paper files
Now that you know where and how you’re going to store your digital tax documents, here’s how you convert your paper files into electronic versions.
Remember that accordion-style folder I mentioned above? Grab that and start scanning your documents.
You simply take a photo of the document and it scans a clean image for you. You can then save the file as a PDF or JPG, plus there are a ton of options available like emailing it to yourself or saving it directly to a cloud-based storage like Google Drive or Evernote (if that’s where you chose to store your files).
No matter how you digitize your tax documents, the important thing to remember is to properly name and organize those files once you scan them. They’re not going to do you any bit of good if they sit in your phone app where you’ll most likely forget about them.
Which leads us into…
How to name your digital tax files
Every single digital tax document should have the following info in the file name:
- Additional details (if needed)
The REALLY important element is the date. We file taxes by year, so having the year in every single document is going to be extremely helpful.
You can assemble these three pieces of info in any order you wish. Here are some examples to get you started.
For a W2:
- 2019_Whitaker W2_Starbucks
- Starbucks W2_2020_Whitaker
For a student loan interest statement:
- 2020_Nelnet student loan interest_Whitaker
- Sallie Mae student loan interest_Whitaker_2019
Remember, the date MUST be included plus any other relevant information that helps identify the file AND makes it easy to search for.
You’re all done! You’ve now organized your taxes and have your files properly stored and named. You’ve also got a system in place that you can replicate year after year. Feels good, right? No more stressing every year — you’ve got this 😎