What is the best way to keep track of my tax documents?

Using file folders is an old way to stay organized and is extremely effective. Pick up several folders from an office supply store and label them by category. Then, when you receive an official invoice, receipt, or tax document, get in the habit of putting it in place right away. If your company is very small, you can use a notebook to keep track of all your tax items.

Make a page for your income items and pages for your expenses. Be sure to include the date of each transaction, a brief description of the transaction, and the amount you won or spent. Staple the documentation to the page where the item appears and calculate the totals by month or quarter. According to the IRS, use your business checkbook to determine your income and expense categories.

Information about your income comes from your deposits and your expenses come from the checks you write. You can choose any registration system suitable for your company that clearly shows your income and expenses. The business you are in affects the type of records you must keep for federal tax purposes. Your registration system should include a summary of your business transactions.

This summary is normally included in your business books (for example, journals and accounting books). Your books must show your gross income, as well as your deductions and credits. For most small businesses, the business checking account is the primary source of business ledger entries. The best way to store hard copies of tax documents is in a fireproof safe.

Along with your tax records, you can keep other important documents, such as your house deed, mortgage and insurance information, documents from your will or trust, and bank and brokerage account passwords. It's also a good idea to tell another person where you keep the key to the safe (for example, this way, in case of emergency, that person will know how to access any documents they may need to keep your affairs in order). In most cases, you should plan to keep your tax returns along with any supporting documents for a period of at least three years from the date you filed your return or the due date of your tax return, whichever is later. This means that you'll avoid sitting around filing your taxes during tax season and realizing that you need to look for documentation that's months old.