There was a time when Americans went abroad to work, study, marry or retire – they paid little attention to expat tax documents or how to keep those tax documents organized.
It’s very different today. Growing numbers of Americans who live overseas are finding that they are subject to a number of obligations, including the requirement to file tax returns every year or risk stiff penalties on top of any back taxes they may owe. Organizing tax documents has become vital.
If you are outside the USA, tax issues are a common source of frustration. Completing your US expat taxes is something that often requires digging through a fair amount of expat tax documentation, even if you enlist the help of some professional. For many Americans living abroad, getting the necessary expat tax documents and keeping tax documents organized may not be so easy, especially if they’re new to a foreign country or live in a tax-free country.
Taxes are complicated but organizing your expat tax documents and filing system shouldn’t be. Use these tips to get organized and make tax preparation easy. Before jumping to the best ways to store and organize expat tax documents – let’s discuss what documents you need.
Tips for Keeping Your Tax Documents Organized Overseas
Documents You Need
Here is a quick list of almost all the expat tax documents that you need to keep organized if you’re living abroad. To make the tax process faster and easier, learn the best way to store tax documents and how to organize tax records throughout the year. That way, when it’s time to file, you’ll have everything you need. If you feel as if you are still missing a tax document, don’t ignore it. Simply contact the issuer to have it re-sent.
- Wages, Compensation, or Tips
- Interest and Dividend Income
- Stocks and Other Securities
- Real Estate Transactions
- Pensions, Annuities, Profit Sharing, IRA, or Other Accounts
- Social Security Benefits
- Other Income
- Interest & Taxes Paid
- Foreign Housing Expenses
- Other deductions
- Foreign Bank Accounts (if aggregate balance is over $10,000 in a year)
- Basic information (Your name, Address, ID numbers, Dependent info, Prior Year’s Overseas Tax Return (if applicable), and travel calendar)
Designate an easy-to-access place for expat tax records
If the place you want to keep documents isn’t easy to get to, it won’t get used consistently.
Even if you intend to scan documents, you need a place to store them temporarily.
Consider choosing something you can reach with one hand, like a shelf or folder.
Active VS Inactive
Active papers are things that are happening now. Ex: 2021 taxes are active; 2019 taxes probably aren’t…. unless you still haven’t filed those taxes. Keep active documents where you can easily access them. A desktop file organizer may be perfect for this.
Inactive papers are reference and records. Since we know we need to save 7 years of taxes, this is where they are categorized. These documents can easily be filed away in a drawer, filing cabinet, or even a box in a closet. Just be sure wherever you have stored them, it is labeled and easily identifiable in the event that you need to reference them at some point in the future.
Group tax documents by category
Depending on the complexity of your tax return, you may want to use file folders, paper clips, boxes, or other methods to categorize documents. Here is a quick two-step process to store and organize active papers in an envelope system–a great tip for keeping tax documents organized. What you’ll need;
- Your big, scary pile of documents.
- 10-12 envelopes (9×12″ size)
- A permanent marker
Step 1: Get Ready
It’s best to work in a spot that lets you spread out. A table might do if you don’t have a complicated return. The more types of deductions you usually take, the larger your space needs to be. Best is to work on the floor since it keeps you from having to lean over a table for hours. Once you’ve chosen your spot, gather all of your tax-related documents and receipts in a pile.
Step 2: Sort This Way
The U.S. tax forms classify types of deductions, you can still enjoy its benefits even if you’re living abroad. Filling out tax papers is a lot easier if you sort your papers based on those. So, grab the marker and write the category names on separate envelopes. You can use following labels,
- Medical expenses (Any receipts related to medical expenses)
- Charitable donations (Cash + Items donation receipts)
- Real estate papers
- Property and sales tax papers
- Childcare payments
- Loan payments
- Work-related expenses
- Self-employment expense receipts
- Utility bills
Then spread out the envelopes so you can see all of them and start sorting receipts and papers by type. This is easiest if you label the envelopes toward the top and lay papers beneath that, rather than inserting them one at a time. Once you’ve gone through the entire stack, straighten each category’s papers, add up the total amounts for your deduction, and write this on the front of the envelope under the label. Then tuck the papers into the envelope.
Keep Electronic and Paper Backups
While you’ll want to hold onto paper receipts to document your expenses, a receipt can get lost or damaged, or even fade over time. Protect receipts and other documentation by keeping a digital copy of your expenses. This can be as simple as:
- Scanning your receipts to store as images or PDFs, or asking that they be emailed to you if that’s an option
- Keeping electronic rent receipts
- Saving PDFs of utility bills
Check in on the electronic documentation you have as part of your regular check-in to make sure you have a digital backup of all your receipts before you put them into long-term storage.
Deal with missing information and do so early.
As you collect expat tax documents and review your organizer, it is good to develop a list of missing items. While working on collecting the missing pieces you should schedule your tax appointment. It is better to do this earlier rather than later because by sitting down with your tax preparer, not only could additional issues be found, but the discussion on whether to extend the tax return can be evaluated. Extending the tax return while waiting for open items may provide peace of mind.
Need to consult a tax preparer? Contact us now and book the free 20 minute Consultation Call
Business and Personal Records Shouldn’t Mix
You must keep your business and personal expenses separate from each other, as is required by the IRS. They generally both go into the same envelope, but you should keep them separate. You can do this with one folder, or multiple folders, whichever is easiest for your situation. Just be sure to keep everything in one place so you don’t have to search for it when the tax season rolls around.
Sort incoming papers as soon as they come in
When paper hits your desk, or your mail, at home, immediately organize into shred, trash, recycle, and active, or inactive. It may be helpful to have bins nearby clearly labeled so you can do this quickly. You don’t need to immediately shred your “shred” pile. You just need to sort and identify what’s important and what’s not. This will keep you from having piles of papers randomly throughout your house, or on your desk!
Make notes for yourself
Leave yourself notes on what needs to happen on any active papers. This will help you remember why you kept this piece. It will save time in the future. After a crazy week, will you really remember why you kept that receipt, stuck in the middle of your active stack? Were you supposed to scan and file, provide a reimbursement to an employee, or was this for a holiday gift and you are waiting to see if they may want to return or exchange the item? Taking just a moment of time can save you lots of stress later!
Backup Your Information
Even the best-planned and carefully organized storage systems can fail through no fault of their own—a lost phone, crashed laptop, broken hard drive, or even a fire or flood can wipe out physical or digital documentation. Back up your digital receipts regularly to the cloud or an external thumb drive so you’re covered in case of a hardware or software failure. You can use Dropbox or a simple Google Drive to do your job.
While some of these tips for keeping tax documents organized may feel insignificant, added up together, they can make a world of difference. Have you ever come home to realize that the mail has been piling up on your counter for days and you’ve been too busy to even go through it? Have you found your inbox overflowing with paperwork and now you don’t even remember what you needed to do with it? These are all stressful moments that can be eradicated with just a few minutes each day.
If you really want an organized life–and organized tax records–it’s important to take just a few moments, each day, to identify what needs to be kept and what you can let go of. Then, take immediate action. This is the only way to ensure that useless items don’t clutter up your world, and suck time out of your schedule!