Keeping Track of Your Tax Paperwork

jeffkuo · March 12th, 2008

Every year around tax time, I find myself scrambling to gather up all the little bits of information that I need to prepare our taxes. While it’s easy enough to collect up our various 1099 forms, W-2s, etc. as they arrive in January and February, we also have a number of business-related expenses, charitable contributions, etc. throughout the year. While I’m pretty good about keeping everything that we need, I’m not very good at keeping it organized. Thus, we run the risk of losing track of important paperwork and missing out on some legitimate income tax deductions.

Given that one of my main financial goals for 2008 has been to simplify our finances, I’ve recently spent a bit of time coming up with a simple, effective solution to this problem. In short, my new system is comprised of a few 9 x 12 clasp envelopes and a wicker basket. Thus far, I have envelopes set up for the following categories:

— Business expenses

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— Medical expenses

— Charitable contributions

— Miscellaneous (mortgage-related paperwork, property taxes, etc.)

The basket lives on our kitchen counter and, whenever we incur a tax-related expense, I simply slip the receipt into the proper envelope and forget about it. Every few months, I’ll break out the medical envelope and claim those expenses against our flexible spending account (FSA). As for the balance of this paperwork, I’ll just let it accumulate until tax time.

I also have a “remote” version of this system that consists of a letter-sized envelope that I keep in my car for random tax-related expenditures while I’m out and about (mainly minor business-related expenses). I then periodically transfer these into the appropriate envelope in our main system such that nothing gets lost in the shuffle.

While I could probably further simplify this system — for example, by dropping down to just two envelopes (medical and other) — this works like a charm, takes virtually no time, and should save me a ton of pain at years end.

This is a guest post from nickel, who provides a steady stream of personal finance tips, tricks, and commentary over at FiveCentNickel. And since that, combined with his four kids, don’t seem to keep him sufficiently busy, he has recently launched yet another site, this time focused more narrowly on credit cards.

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  1. Aimee Jette

    I have a basket that holds manila file folders (sorted alphabetically) and drop receipts in there during the year. They are labeled: Household 2008; Business 2008; Health… etc. Come tax time, its ready for the accountant.

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  4. Anthony StClair

    We use 2 envelopes for receipts, and it works well for us. They’re kept in a desk tray that holds all the current month’s financial paperwork (anything that involves a monetary transaction). In a filing cabinet, individual hanging files hold info, statements and receipt envelopes for each calendar month in the year. The day’s receipts go from notebook, purse, pocket, whatever, into one of the envelopes.

    For the envelopes, we have CURRENT-MONTH Receipts (non-tax) and “CURRENT-MONTH Receipts (taxes)” . Charitable donations, copays, office supplies, etc. all go into the “taxes” envelope. At year-end, we pull all the “taxes” envelopes and any other needed tax paperwork, and get to work with Taxcut.

    We use the 2 envelopes for simplicity, and sort everything out (donations, business, medical, etc.) at tax time.

    Naturally it’s a constantly evolving system, but it’s worked very well for us so far – much easier management, much less stress.

  5. Hi Anthony–thanks for the great tips. I saw from one of your links that you can get mileage deductions for transportation to and from charity work. What sort of documentation is required in order to take advantage of these deductions? Also, if I payed a toll in cash and did not get a receipt, is it possible to deduct that as well? Thanks.


    Joe: Anthony didn’t write the post, I did. It’s sorta convoluted… This is Ramit’s site, but he’s out of town. My name is ‘nickel’ and I filled in for him today. The site where you found the tax info ( is actually my site. As for your question, it’s generally recommended that you keep a mileage log with dates, detsinations, and mileage. The toll question is a good one, and I’m not entirely sure. Of course, if you don’t get audited then it’s a non-issue. But if you get audited, I’m not sure how you’d substantiate the deduction.

  7. Fiscal Musings

    I just keep a general folder for all tax related paperwork. I also just started keeping a mileage log in the cars for any deductable miles.

  8. Thanks for the tips Nickel and sorry about the confusion.

  9. On the road to HyperInflation

    BTW – the archive of your blog is not currently working (03/13/08).
    I was trying to pull an old article I happened upon, but it was only bouncing me back to the front page.
    Just FYI.

  10. Ramit Sethi

    Thanks — fixed now.

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  13. Carter Kirkwood

    I use It automatically collects and organizes my tax records for me. Plus right now it is free. So what can I say “Priceless.”

  14. Ramit Sethi

    Carter (who I note is from, it costs $199/year to simply collect and store your financial documents? Are you serious?

  15. Carter Kirkwood

    Ramit, Thank you for your response. You are correct that I am with VaultStreet (sorry I did not make that explicit, I am still learning the etiquette of posting comments). While the list price for VaultStreet is $199/year the service is free for a year for those who sign up now.

    We are also in the process of putting together a version of VaultStreet that will be free long term, but that has not yet been implemented so I do not yet know the details of what that will look like.

    I would be interested to know if you have any suggestions on how to improve VaultStreet. The goal is to make it supper simple for people to collect and manage their financial records. Thus making tax time, monthly bill paying and applying for mortgages much easier.

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