You may want to keep your income tax records in a separate file, for easier reference. This will keep everything together for easy access in the event a question arises with respect to your return, if you are subject to an audit or review, or if you need a copy of your tax records to take out a loan, start a business, or for other purposes. And, when you start doing next year’s return, you will have the prior year’s return to refer to.
Records that support the amounts reported on your return should be filed together with your copy of your income tax return. When you prepare your tax return, you will need to organize your records, receipts, and other documentation in order to calculate the corresponding amounts to be reported. You may want to file these records in the same manner, grouped according to how they are reported.
You can keep your copy of each year’s return together with all the receipts, statements, worksheets, calculations, and other documentation grouped together and organized to support each individual item as reported on your return. You may want to keep an envelope for all records related to a particular item, or it may be sufficient to have a single file folder or envelope per year. For example, you will need to keep a copy of your tax return together with copies of your W-2, 1099’s, and any other evidence of your income, and receipts and documentation of your deductible expenses.
Other documents, necessary for income tax purposes, also serve other purposes, such as the closing statement on the purchase of your home. These types of documents will probably form part of your more permanent personal financial records. You may want to include a photocopy of these records in your income tax return file, or if you just need certain data from those records, you may want to have a cross-referencing system to be able to locate the documents that support your tax return data.