Get organized now for the 2021 tax year

Each year, millions of Americans scramble to locate every receipt, form, pay stub, and scrap of documentation they need to maximize their income tax refunds, or at least minimize the amount that they owe to the United States government on April 15.

If this sounds like you today doing your taxes for the 2020 tax year, it’s time to adopt a new way to prepare for the 2021 tax year now.

According to Turbo Tax, the best way to maintain a good record of receipts and expenses is to handle them regularly, so you can avoid tracking down months-old materials. They recommend color-coded folders in an easy-to-access location. Folders might include home and office expenses, vehicle expenses and mileage, education costs, child care expenses, medical expenses, and other items, such as charitable donations, work uniform purchase and cleaning costs (for work-only attire), and work-related expenses. Turbo Tax also recommends that you scan each receipt and maintain both electronic and paper copies.

If the multi-folder system sounds like too much hassle, The Motley Fool recommends a simpler three-folder tax filing system.

Folder number one: Income. Log every penny you earn on a sheet in this folder. Store other related documents, like 1099 and W-2 forms in this folder as well.

Folder number two: Expenses and deductions. If you choose to itemize your deduction instead of taking the standard deduction that Uncle Sam offers to most taxpayers, you’ll need to maintain a file of every receipt, mortgage statement, investment-related expense, medical bill, child care costs, and other employment-related expenses. Be careful, though: This folder can get fat in a hurry, so it may be worth your time to organize it into more sub-folders or use envelopes for each expense category.

Folder number three: Investments. Use this folder for statements, purchase receipts, sales confirmations, year-end overviews, and dividend notices. You’ll probably want to create sub-folders for deductible/tax-deferred investments, non-deductible investments, and taxable investments.

Maintaining a year-round system for tax documents may sound annoying, but it pays off big. In 2015, taxpayers left about $1.4 billion in tax refunds on the table with failure to file returns and other tax mishaps, according to CNBC. With a little planning and experimentation you can save the frantic search of tax season — and maybe even get a bigger return.