Over the holidays, my husband and I plan to get our financial affairs in order. I mean that quite literally. Our files of paystubs, receipts, and portfolio statements, among other financial paraphernalia, are a mess. I'm embarrassed to admit that I'm the kind of person that always has receipts spilling out of my wallet. When it recently occurred to me that I don't know where my husband and I keep our will, I knew it was time to improve our bookkeeping.
With tax return season around the corner, it's certainly the right time to start getting our records together.
Having a file system for all of your financial records can make tax time a lot easier, says Regina Leeds, author of One Year To An Organized Financial Life. "Take a day to create the system and then tune it up around the New Year," she suggests.
Ms. Leeds, a professional organizer based in Los Angeles, devotes a full chapter to getting ready for taxes in her book.
To start, know which documents you need to keep and for how long. For example, the Canada Revenue Agency advises taxpayers to keep tax return supporting documents for six years, in case you are selected for review and need to support your claims.
Documents that you should save include pays stubs, charitable receipts, investment statements, monthly bank statements, and credit card statements (if they include deductible purchases for which you have no other receipts). If you run a home business, you should also keep any bills or receipts related to tax deductions you're claiming.
Kristie Demke, president of Professional Organizers in Canada (POC) and a professional organizer for nearly 12 years, says it's a good idea to look at last year's tax filing to remember what you need and keep a list of these items in your office. It's also important to keep in mind the new tax credits available, such as the home renovation credit, and gather any receipts for that claim.
"People overlook a lot of what is now tax-deductible, such as the fee for safety deposit boxes, bus passes, as well as fitness fees," says Ms. Demke.
Once you've gathered what you need to keep, get rid of everything else. As Ms. Leeds says, "When it comes to organizing your finances, tossing and shredding become your new best friends."
When you've weeded through all of your papers, it's time to start sorting your financial documents. Lay everything out on the floor and group your receipts by category. These categories might be income, investment and interest income, household expenses and business expenses.
After categorizing your documents, you need to file them. The best filing system is one that you feel comfortable using. Both Ms. Leeds and Ms. Demke agree that there is no single correct way to store your papers.
Ms. Leeds likes using hanging file folders and puts manila file folders inside, but you can use envelopes as well. It is critical to properly label them. "Keep your files in alphabetical order and use a label maker to identify each," Ms. Leeds suggests. If you have several big categories to file away, use box file folders that are at least two inches thick to house them.
"You can even throw it all in one box in your office," says Ms. Demke, "but try to keep the different expense categories together so it's easier to find."
For documents older than two years that still need to be retained, store them all in an envelope by year only. "Don't bother to sort and make individual folders for specific categories," according to Ms. Leeds. "If you are audited, you can pull out this material and sort it at that time."
Make sure you organize your purse and wallet too, and not just your home office desk. Are coins rattling around the bottom of your bag? Do you stuff money wherever you can? "Being organized about money includes treating it with respect," Ms. Leeds says.
If you prefer to keep at least some of your files electronically, consider using a software program such as Intuit's QuickTax. The most popular tax program among Canadians, QuickTax has a feature that will import charitable donation receipts and investment receipts directly into your tax return.
"A lot of people tend to have a single folder at home where they keep all their receipts and tax-related documents," says Cameron Moore, senior product manager at Intuit. "QuickTax helps eliminate the proverbial shoebox."
The idea of a financial clean-up may be overwhelming, but there are people that can help. The POC has an online directory where you can find a professional organizer in your neighbourhood. Rates for an organizer start at $50 per hour.
Ms. Demke, based in Edmonton, has set up financial filing systems for families with drawers filled with receipts. Several had avoided the pain of organizing their papers and filing taxes for years.
While this level of disarray is dire, many of us have problems keeping our paperwork straight. I'm looking forward to being more prepared this coming tax season.
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