A new year is a great time to look at how you organize your financial paperwork. Like organizing your closet, organizing your receipts can make you feel great and can also pay off, literally, at tax time.
The IRS recommends that all individual taxpayers keep these for at least three years:

• Bills
• Credit card and other receipts
• Invoices
• Mileage logs
• Out-of-pocket pharmacy, dental, lab and other medical receipts
• Canceled, imaged or substitute checks or any other proof of payment
• Any other records to support deductions or credits you claim on your return

Keeping all these straight clearly takes a clear record system so you can breeze through when it comes time to file. Here are three quick steps and suggestions to make it simple and practical.

1) A place to throw it. Make sure your storage of choice is easily accessible, for a simple toss later. Use an accordion folder with as many sections as you need, or a 3-ring binder with zippered pockets. Consider a labeled “Taxes 2010” folder in your home office file cabinet or use a large clamp to just keep it all together—or a retro spike to stab receipts into.

2) Label logically. It’s fine if you choose to just keep all your receipts together in a clamp or bag and sort later—first step is to get them all together. However, the more you label and organize now, the easier it’ll be to file later. Especially if you’re including small business or corporate expenses, labeling or sorting up front really does help come April 15th.

Label your receipt folders “Credit Card”, “Mortgage”, “Medical”, etc. and highlight the date and the total amount on the receipt. Write the general type of receipt on the top–“Medical”, “Income”, “Expense” and have a separate file for the category. With frequent use categories like public transit, or repeat prescription purchases, you’ll be more likely to toss them in.

3) Save. Repeat. Make time every time you clean out your purse, shopping bag or review card/bank statements to highlight and toss all receipts into your storage of choice throughout the year.

4) Go Digital. Good news for paperless fans. The IRS now allows you to file with digital receipts. Try scanning receipts with a device like NeatReceipts. Or you can record receipts with an online/electronic tax prep software, or build a simple Excel spreadsheet of income and expenses. There is also buzz of a program in the works that produces an electronic or “smart” receipt at the cash register which is sent directly to your account.

Anyway you choose, it pays to take an afternoon to set up a simple system now so you can stay organized all year. You’ll only have yourself to thank come tax time next year!

Laura Dauphine is an MBA’d financial writer.