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Winning the Paper Chase at Income Tax Time

February 05, 1987|BONNIE McCULLOUGH

As we try to dig up information to file income tax returns, money is a popular topic at this time of year. Good money management has to do not only with how you plan and shop, but also how you physically organize paper.

Designate a place to keep all financial papers together. It may be in a cupboard in the kitchen, a dresser drawer, a shoe box. If you are lucky, you may have a desk or even a file cabinet, but they aren't essential. If you leave everything on the coffee table or behind the toaster and expect it to be there a month later, it may not be. When you start looking and can't find it, you'll get angry. You'll put off paying the bills, balancing the checkbook or filing an income tax return. You run the risk of making costly mistakes.

Make it easy for yourself. Whenever you get a paper you may need later, place it with other financial information in a designated space.

Set Up a System

If you want to be a little more refined, and as financial affairs get more complicated, set up a simple system and subdivide papers by category. The divisions can be bills, paycheck stubs, insurance papers, bank statements, car maintenance log, donations, medical bills, etc. Or, label a file folder for each month of the year and group papers according to the month the bill was paid. Even if you only toss the papers into a drawer, at least they will all be together, even if it takes an hour to sort them when you need something.

Setting up a personal-business financial filing system takes surprisingly little time. Once it's in place, it takes just a few minutes a month to keep up to date.

Keep track of where money goes. As we file tax returns this time of year we are aware of income and wonder where the money went. In my opinion, a typical consumer does not know how 25% of his/her money was spent. How can one make judgments for improvement? Some people simply use their checkbook ledger while others prefer a spreadsheet journal. You work hard for your money; get the best value from it.

Train yourself to keep all sales receipts, especially the tissue paper carbon from credit purchases. It took us three years to get into the habit. The secret was to find a handy place to drop them--an empty cookie jar.

Designate a place to keep guarantees and work-orders for goods and services. Staple the sales receipt to them. Place it in a secure place. Basic principles of organization apply here--first designate a place and second be strict about getting it there.

At my house, we chose an expandable folder. Besides guarantees and proofs of purchase, we place operating instructions for all appliances, tools and equipment: lawn mower, blow dryer and disposal, etc. This is where you will find instructions for setting our various digital watches. We keep the serial numbers for bicycles and other equipment in this file. When something goes wrong with an item, we know where to look for any related information. If we can't fix it, we just pull out the sales slip and take it with us to exchange it for a new one or to the franchised repair shop.

For the last five years, we have saved at least $300 each year by keeping track of these receipts and service orders. All it takes is self-control to keep track of these little pieces of paper.

After you finish filling out a tax return (keep a copy for yourself), wrap all related receipts, canceled checks that prove entries, etc., with a large rubber band, tuck in a manila envelope and store the packet in an out-of-the-way place. If you get a letter from the Internal Revenue Service challenging the return, you will be glad to have the right papers.

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