eTaxes: 4 Steps to Paperless Taxes

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Here we are, less than 30 days from Tax Day. If you’re reading this, you are a procrastinator, probably for one of two reasons:

  1. You hate doing taxes.
  2. You suspect you owe a lot of money.

Well, No. 2 is easily resolved. If you do your taxes, you’ll know how much you really owe. Plus, you’ll have more time to confirm accuracy and look for ways to save. You’ll even have more time to make money to pay those taxes.

Procrastination reason No. 1, however, is harder to resolve. Doing your taxes is a huge hassle: It takes forever (in your mind, at least), involves all kinds of language you don’t understand, and offers lots of room for oversights and errors. Even if you pay someone else to do it, you need to collect a huge amount of personal data from online accounts, paper documents, digital filing systems, and more.

If you qualify for a refund, you face delayed gratification (who has spent their tax return four times before it arrived?). Otherwise, after all that work, you get to pay—maybe thousands of dollars. Fortunately, there’s a better way.

The Better Way: Paperless

Paperless taxes can resolve just about every issue you have with doing taxes—except for the amount you actually owe. With digital recordkeeping and filing, you can keep all your tax documents in one place, easily review them while e-filing, and quickly receive any refunds owed to you. All this, plus no midnight visit to the post office!

As with all paperless processes, this will be a journey, not a race. You may need to start digitizing and filing for next year, but at least take advantage of e-filing this year.

Step 1: Digitize

The IRS does not require paper documents for filing taxes or even for audits. Digital documents are just fine, but unfortunately not everything comes that way—at least by default. To get all your documents digital, try these strategies:

  • Say Yes: First, as much as you can, stop paper from coming in by saying yes to all offers for e-services. This includes emailed receipts, direct deposits, e-statements, and even electronic W-2s and 1099s. You may actually need to go beyond saying yes to offers—you might need to seek out request e-services, but it is worth it.
  • Scan: As important financial papers come in, scan, shred, and recycle.* If paper is the exception rather than the rule in your life, you can get by with a flatbed scanner built into a printer or a small handheld scanner such as a Doxie. If you’re looking to digitize years’ worth of personal and business records, however, look for a desktop scanner with a document feeder.
  • Snap: For small documents, such as parking tags or coffee receipts, simply snap a picture with your phone and send that little scrap off to the recycler (where its rapidly fading ink won’t bother anyone). If necessary, jot down the name of the client or business purpose on the receipt before you snap.

*Documents such as deeds, marriage licenses, and stock and bond certificates need to be retained in hard copy.

Once your documents are digital, you need to store them in a secure location.

Step 2: File with Tags

While the IRS allows for digital recordkeeping, it does dedicate nearly 1,000 words to the topic of Electronic Storage Systems Requirements. Essentially, you need to store your documents in an organized manner that allows for easy retrieval and printing. (Easy retrieval obviously depends on backups—the IRS does not take “my hard drive failed” as an excuse for having no records.)

Using a cloud-based digital filing system such as FileThis, Dropbox, or Evernote is an easy way to meet these requirements. Your documents are automatically backed up and secure, and you can take advantage of organizational features to organize documents for easy retrieval. Filing systems generally offer endless levels of hierarchical folders and tags for managing documents along with sophisticated search capabilities. In FileThis, for example, you might create a 2014 Taxes folder and then create tags for all documents related to Home, Work, Education, Finances, and Medical Expenses.**

If you get in the habit of sending every document—from your W-2s to your bank statements to your gas receipts—to your filing system as it comes in, all your tax documents end up in one location. You don’t even have to do all this legwork yourself. FileThisFetch can run out, grab monthly statements from all your online accounts, and add them to your digital filing system.

This solves half the battle of doing your taxes—collecting all the data. With all your information in one place, you can easily ship off all your information to a tax preparer. Or, open your files on one monitor and enter information into an online tax filing system on another.

**See the Tax Categories table below for ideas on saving and tagging tax records. We can’t guarantee that these all apply to you—research your situation or ask a tax preparer—but they certainly will not apply to you if you don’t keep records.

3. E-File

Here’s how I did my taxes in the 1980s as a 16-year-old with a part-time job at Target: I drove to the library, picked up hard copy forms, filled them out, signed and mailed the return, and waited for a check. This took about two hours. Other than my dad looking over my shoulder, I had no idea if my work was accurate—or even received by the IRS. A month or so later, a check arrived that I drove to the bank and cashed.

Today, a computer-savvy 17-year-old can file taxes online in 21 minutes. I know because my babysitter did it as a first-time filer. She started at www.irs.gov/Filing, hopped over to a free online preparer, created an account, answered a bunch of questions, created a five-digit electronic signature, submitted her return, and downloaded a PDF. (The PDF was promptly uploaded to her FileThis account.) A text message informed her of receipt and an email followed up with details. She expects a whopping $32 federal refund to drop into her debit card account any day now. Easily half the time she spent filing involved answering no to questions about foreign investments, dependents, and the like.

Now, imagine a far more complex tax return. If you make more than $58,000, you need to pay a little to e-file, but it will be worth it. IRS-approved online tax preparers walk you through the process, offering plenty of explanations, analysis, and confirmations. The time and money you can save, not to mention the hassle, make all that digitizing and organizing worth it. Wrap it up, submit your return, and pay online—or send the refund to your bank account. (Killjoy financial planners suggest putting it straight in savings.)

4. Retain Records for 7 Years

As with paper records, the IRS requires you to retain your digital tax records for seven years. This includes copies of your returns along with supporting documentation such as W-2s and bank statements. Store this information in a cloud-based digital filing system and it’s easy to purge old documents (for example, deleting your 2013 files in 2021) or simply leave them there forever.

With digital documents all in one location, paperless tax preparation is quick, easy, and accurate. There’s no reason to procrastinate! (Except the reason from Despair.com: “Procrastination: Hard work often pays off after time, but laziness always pays off now.”)

 

Tax Categories

Household Expenses Business Expenses
Home Home Office
Mortgage Interest Equipment
Property Taxes Hardware
Improvements Software
Energy Savings Other
Other Phone
Financial Internet
Bank Statements Furniture
Investments Office Supplies
Retirement Fund Contributions Printing and Copying
Other Postage
Work Professional Services
Income (Pay Stubs, W-2s) Accounting/Tax
Required Uniforms and Cleaning Legal
Protective Clothing Repairs
Safety Equipment Consulting
Professional Services Cleaning
Accounting/Tax Association Dues
Legal Licenses
Financial Planning Insurance
Education and Training
Out-of-Pocket Medical Expenses Professional Publications
Dental Business Gifts
Vision Meals and Entertainment
Hearing Advertising and Promotions
Prescribed Treatment Programs (Weight Loss, Alcohol/Drug Abuse) Travel
Copays (Office Visits and Prescriptions) Auto
Medical Transportation Lease
Child and Dependent Care Maintenance
Charitable Donations Mileage
Education Expenses Parking
Losses (Theft or Destruction) Collections and Bad Debts
Income Records
Sales
1099s

 

 

Kelly Kordes Anton is a freelance writer and editor who lives in Littleton, Colorado. She specializes in financial education and publishing technologies.

Learn more about FileThis.com and see our 6 Expert Tips For Going Paperless.