What You Need to Know to Tackle Your Taxes

Come on. Just get it all out of the way ASAP.

You should have received all documents necessary—your W-2, Form 1098 (if you have a mortgage) and Forms 1099—to complete your 2013 taxes. You’ve still got plenty of time, but handling this yearly task early has major benefits. If your tax bill is surprisingly large, you have time to figure out a payment strategy. If you’re entitled to a refund, you will receive it sooner.

And while you’re at it, tax season is the perfect time to do financial spring cleaning. Here’s what you need to know before you start:

• Because the Internal Revenue Service has three years to challenge anything, you must keep three years’ worth of returns and supporting documents.

• Remember, if the IRS suspects you haven’t reported income, it can challenge returns from the past six years. So if you are self-employed or have multiple income sources, hold on to six years of files to be absolutely safe. (By the way, there is no statute of limitations if you fail to file or if the government suspects you of fraud.)

• This won’t affect your 2013 taxes, but better to do it sooner rather than later: Roll over 401(k)s from old jobs or individual retirement accounts at different firms into one account at a low-cost brokerage or mutual fund company. It’s easier to keep track of everything this way, and you’ll save on maintenance fees.

• To learn more about IRS recordkeeping guidelines, visit IRS.gov.

If it’s difficult to track down all the documents you need to do your duty for 2013, that’s a clear sign to work on your organization. It’ll pay off big not only next tax season, but all through the year.

Begin by gathering up your documents. Pull out stray files, snatch the latest round of bills, and empty that overflowing kitchen or office drawer stuffed with papers you’ve been meaning to get to for ages. Sort everything into six distinct piles:

• Monthly bills, bank statements and pay stubs.

• Investment statements (pension updates, 401(k) statements, brokerage and fund statements, and so forth).

• Tax returns and supporting docs.

• Policy documents and deeds (insurance policies, home deed, car titles, etc.).

• Warranties and user manuals.

• Forever documents (things like a marriage license, will and birth certificate).

Make time to tackle each of these piles, creating a folder for each type of document. Add new papers as they come in (except the forever docs—put them in a portable fire- and water-resistant home safe or container, something you can grab at a moment’s notice).

For everything you decide to trash, I have one word of advice: Shred. The Federal Trade Commission estimates up to 9 million Americans each year are victims of identity theft.

To toss, or not to toss?

Get rid of… ATM slips more than a month old. Toss them after checking them against your monthly statement.

Hang on to… receipts for big-ticket purchases that might be included in an insurance claim. And photograph these possessions; the more documentation you have, the easier an insurance claims process will be.


If you're planning taxes for a small business, make sure you check out the "3 Tax Mistakes to Avoid."

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