Make sure you keep all source documents pertaining to your tax return. These include such documents as the following:

• Sales invoices
• Purchase invoices
• Cash register receipts
• Formal written contracts
• Credit card receipts
• Delivery slips
• Deposit slips
• Cheques
• Bank statements
• General correspondence.

When deciding what type of source document to keep, consider this: What type of document will best verify your tax records? The stronger the evidence, the less likely it is that your tax records will be rejected by the CCRA. Let's face it. Keeping good books and records is always a good idea because it makes doing your taxes less of a chore. Now that you have two good reasons for keeping proper records, here's how to do it!

Setting up your record-keeping system

In our experience, the number one reason people end up paying more tax than they have to is because they keep lousy records. We know that taming the paper tiger is no mean feat. There are books written on that subject alone. What follows are our best suggestions to make your tax organization and preparation tasks much easier.

Our favourite method of organizing tax information is in an accordion file. You can pick up one of these at any office supply store. Label each section by expense category. Use the categories listed on the tax form you will be completing; for example, office supplies, parking, advertising. As you collect receipts throughout the year, periodically sort them into the proper category. When it comes time to file your tax return, all you have to do is take out the receipts, add them up and enter the total on the tax form.

An alternative way of achieving the same result (if you've had a traumatic experience with an accordion in the past) is by using file folders or envelopes. Label each file or envelope by category, and, again, sort the receipts into the proper folder or envelope on a regular basis. Save all receipts and receipts that have been thrown away than it is to ceremoniously toss out whatever unnecessary paper you have left after your tax return is complete.

You may want to consider organizing your tax information by the tax schedules you have to file; that is, Statement of Real Estate Rentals, Capital Gains and Losses, Statement of Business Income and Expense. If your tax return is uncomplicated, it might be sufficient to have one file for each year; as you receive your tax information throughout the year, just put it into the file. This will save you from tearing yourbookmark last June. Keep a copy of the tax return you filed for that year and your Notice of Assessment, once received, in the same file folder.

Even if you end up hiring a tax accountant to prepare your tax return for you, you will save money if you sort and organize your tax information before you hand it over.