In the first part of this series, I discussed the required materials for organizing tax information and I suggested categories for sorting your home office tax information. In this part, I discuss how to file this information for easy retrieval.
Now you are going to take all of your documents related to income and create folders to correspond with them. First, label two hanging folders. The first folder will be labeled "Income" and the second will be labeled "Interest and Dividends" Place these two folders in your filing cabinet or filing crate so they are ready to recieve the documents that will fill them.
If you have any W-2s gather them now. Check each against the final pay stub for accuracy. Paper clip the two together and place them in a file folder labled "W-2s." If you are organizing early for next year's taxes, place your most recent pay stubs in this folder. Check each against the last for accuracy and then shred the outdated one.
Next, gather any 1099s you have received. I reccommend you keep a seperate file for each 1099 client. In this file, place the 1099 form, and any paid invoices. Double check the amount invoiced against the amount reported on the 1099 for accuracy. Label each file with the client name, or consulting job name. If you have fewer than three or four 1099s you can use the same folder. Seperate folders just helps you to keep them clear. If you are organizing early for next year's taxes, keep a copy of each invoice you send out. When payment is received, mark the document "Paid, Date, Check # (Payment Method)." Keep your copies in the income folder.
Create a folder for each type of income you will be reporting on your taxes. All folders should go into the "Income" hanging folder when you are finished.
Once you have filled your income folder, gather your interest and dividend statements. These statements should be filed by institution. Each bank account should have its own folder with the interest statement and the December statement from your bank. The same goes for your dividend statements. Place these folders inside the Interest and Dividends hanging folder.
Expenses are usually where things get a bit tricky. No one really likes to look at what they spent, and receipts tend to overpower things. To get started with organizing expenses, you will need to create hanging folders for master categories such as:
- Business (anything directly related to your business - supplies, computer, etc.)
- Medical
- Child Care
- Student Loans/Education
- Transportation
- Real Estate
- Donations
Once you have labeled the hanging folders that you will require for tax purposes, then you can start taking the receipts you have already sorted and placing those into more specific folders. For example, your medical hanging folder may contain a manila folder for you, one for your spouse, and one for your child. If you have more than one child, the child care hanging folder would have a folder for each child with receipts for their care.
For more information on deduction categories, read the following articles:
"Tools to Help Claim the Home Office Deduction" by Brian Nelson
"Free Help with Your Business Taxes" by lorisoard
and
"Common Home Office Tax Questions" by JMendes
