NerdWallet's Smart Money Podcast - Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe

Episode Date: April 7, 2025

Learn how to store all your important documents and get some last-minute tips for filing your taxes.  Where should you store your important financial documents? How long should you keep them? What should you do if you’re facing a tricky tax situation? Hosts Sean Pyles and Elizabeth Ayoola discuss some tips and best practices for storing documents like tax returns, bank statements, credit card bills and more, including how and when to dispose of them safely.  Then, NerdWallet tax writer Bella Avila joins Sean and Elizabeth to answer listener questions about filing taxes. They explain what you can do if you’re facing an unexpected tax bill, what you need to know if you’re working and paying taxes in multiple states, and provide guidance for those who may be behind on their taxes, including some steps to take financially and emotionally to get back on track.  NerdWallet’s list of best tax software: https://www.nerdwallet.com/p/best/taxes/tax-software  NerdWallet’s list of best identity protection services: https://www.nerdwallet.com/article/finance/comparing-identity-theft-protection-services  NerdWallet’s federal income tax calculator: https://www.nerdwallet.com/calculator/tax-calculator  In their conversation, the Nerds discuss: how to organize financial documents, storing important documents safely, financial document storage tips, fireproof safe for documents, digital vs paper document storage, what documents to keep and for how long, how long to keep tax returns, where to store estate planning documents, best way to organize personal documents, how to file taxes, tax season 2025, tax filing deadline April 15, IRS payment plan, what to do if you owe taxes, surprise tax bill help, how to adjust tax withholding, IRS withholding estimator, tax penalty relief, first time penalty abatement, estimated tax payments, filing taxes in multiple states, state tax withholding rules, non-resident state tax return, tax filing for remote workers, state reciprocity agreements, taxes for 1099 income, how to file taxes as a freelancer, self-employed tax filing tips, tax tips for gig workers, how to track 1099 income, what happens if you don’t file taxes, how to file back taxes, emotional stress about taxes, tax anxiety help, procrastinating on taxes, getting help with past-due taxes, financial shame and how to overcome it, free tax filing options, IRS free tax help, best tax software 2025, tax counseling for the elderly, volunteer income tax assistance. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Sean, one of my intrusive 3 a.m. thoughts is whether I've told my beneficiaries where my estate planning documents are. And when I last saw my birth certificates as well. Am I alone in this? Definitely not. I sometimes have panicked thoughts about what's going to happen if I die some horrible, sudden death and no one knows where any of my stuff is. What a downer, but I'm going to pick it back up.

I think it's a good time for us to discuss document management so I can make room for other intrusive 3 a.m. thoughts. Welcome to NerdWallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Piles. And I'm Elizabeth Ayola. This episode, we're answering more of your questions about taxes ahead of the April 15th filing deadline. But before we sway that way, let's talk about managing important financial documents,

which is also relevant when it comes to taxes. I never thought I'd see the day where we'd be ready to nerd out about documents, but it is an important topic. So here we are. Ha. So Sean, how do you store your documents? What are you gonna do with the tax document, Sean? Yes, I'm all in your business. Okay. Well, this is where I confess that my document management is one of my biggest financial and adult blind spots. I'm embarrassed to admit that I have been keeping my documents in my nightstand for many years now, all mixed up with books I've been meaning to read

and old headphones and whatever else accumulates in there. And let me tell you, it is not a good look for a CFP. Well, this is a no shame zone, and that means this episode is for you, Sean. But I will say at least they're not being stored on the kitchen counter and being decorated with food stains. That may or may not be a personal story. So I keep most of my documents inside of a folder tucked away somewhere in my garage and some are in my bedroom wardrobe in another folder and some are in my email.

So this makes the timely segue into the right way to store your documents. Okay, Elizabeth, I think it's good for us to outline what types of documents we're talking about to start with. My assumption is you're referring to all financial documents, right? Like tax returns, bank statements, birth and marriage certificates. You are correct. I'm referring to those and essentially any document that could impact your financial life.

You want to think carefully about how you store legal identification documents, tax documents, financial records, and also estate planning documents. Things like tax returns, investment statements, bank statements, pay stubs, car titles, property deeds, insurance policies, and Social Security cards could fall under those categories, but I know I mentioned a lot. Pretty much everything you could imagine. Exactly. So Elizabeth, what suggestions do you have for a better way to organize my files than their current situation, which is a mixed up mess?

Well, you have a few options here. If you don't want to turn looking for important documents into a scavenger hunt, you can put hard copies of your documents into labeled folders and then house them in a file box, cabinet, drawer, or a wardrobe. Learning how to store documents also seems to be a process of learning where you shouldn't be storing them. And a big part of this is finding secure places to keep documents. What are the safest options that folks have?

Ideally, you'll keep them in a safe and dry place. I once left my documents in a humid closet, and I bet you can guess what happened to them. Another free tip, if you have young kids, keep the location out of their reach. Some of my important documents have turned into coloring books for my son over the years. For people who want an added layer of security, consider a fire resistant file cabinet or a safe. And another option is a safe deposit box at a local bank.

You probably don't want to put documents you'll need frequently in there because, of course, banks are usually closed evenings, holidays, and weekends. Also, an original copy of a document, like a will, probably shouldn't go in there because if you die, an executor will need the legal right to access the box. But that said, you could leave a copy with a trusted friend, or a relative, or with an attorney.

It's also important for folks to have some type of filing system so you can easily get to your financial documents. Instead of just dumping all of your documents into a single folder, maybe categorize them. So you could have one folder for health, another for bank statements, another for loans, and so on. If you want to be super organized, you can also arrange the documents in chronological order within each folder. And that just inspired the ultimate this or that question for you,

Elizabeth, paper or digital storage? Both, because why not? It can be helpful to have a hard and soft copy of financial documents just to cover your back and your front. Now in terms of storing digital copies, you can take pictures of your documents and store them in a hard drive or an online cloud. You could also pop them in a file on your computer, but there is the risk of that computer getting lost and technology fails sometimes. So it's good to also have a hard copy somewhere and inform your loved ones about where that

location is. And I'll also add for people who are worried about cyber criminals, there is some identity protection resources that you can use or tools rather in case you're worried about that. So we will link out to that in the show notes. It's also good to have both because in some cases, like with a will, a digital copy won't suffice. So having a hard copy can save your family from a lot of confusion and anguish. Correct. So we know how to store documents, but how long should we keep them? I feel like it's really easy to become a document hoarder, I say, speaking as someone who has

a decade's worth of tax returns in my nightstand. I know document hoarders, and it creates so much drama sometimes when you're searching for important documents. You first have to get past the pile of irrelevant documents before you can find what you actually need. So having too many financial documents laying around can also put you at risk of identity theft. So are there some rules of thumb that people can follow around when to keep and when to

securely get rid of documents? There are. For tax documents like returns, W-2s, 1099s, charitable donation documents, and tuition payment receipts, ideally you keep them for 3 to 7 years. That's because the IRS usually does an audit further than 6 years. Yeah, that means you should probably ditch the tax return from 2018 and earlier. But seriously, if the IRS decides they want to be in your business and do an audit, you'll need those returns. Finance professionals say you can keep bank statements and pay stubs for up to a year.

Many banks will provide bank statements as far back as seven years in case you dispose of them earlier and you happen to need one. In terms of utility bills, you can probably keep them for let's say one to three months. When I'm asked to provide a utility bill for something, they usually want a bill no older than three months. And also you can likely request an e-bill if you need something further back. And lastly, as for medical bills, the Federal Trade Commission suggests keeping your paid and undisputed medical bills for at least a year. And now what about receipts? I personally hate accumulating receipts and I tend to toss them

out as quickly as I get them. I have some by my bedside as we speak. Unless you're using them to document business expenses or for something you might get a tax credit on, you can usually shred baby shred. Warranty receipts are the exception. You want to tuck those away safely until the warranty is up. Sean, you're a homeowner. I'm going to let you share your nerdy two cents about property records. How long should people be keeping those? For things like titles, deeds, insurance policies, and mortgage statements, you may want to keep

those documents for as long as you have the house. And be sure to keep a copy in the cloud somewhere in case you can't get it from the city. Well, Elizabeth, let's turn to how folks should get rid of documents they don't need. What's your advice there? Good hygiene around this is to shred and then you could also recycle. You don't want your personal information hijacked by a scammer. So ensure you dispose of these documents safely. Based on this episode, what's next for you and your document, Sean?

I know organization is important to you. Well, now that I publicly shamed myself on this podcast, I'm going to take a trip to the container store and get myself some drawers and a fireproof box to finally organize my documents. Woo! We're about to answer a few of your questions about tax season 2025.

But before we get into that, listener, take a second and think about where you need some guidance with your money. Maybe you've fallen off track with your financial goals for the year and need help getting back on track. Or you're faced with a major financial decision and need help weighing out your options. Whatever your money question, we nerds are here to help. Leave us a voicemail or text us on the nerd hotline at 901-730-6373. That's 901-730-NERD.

And I have a special request for you. I've covered scams at NerdWallet for a while now, and last year we even did a whole series about scams that we encounter every day. So I want to hear from you about what you're seeing out there right now. Those annoying text messages from Easy Pass saying that you owe a toll you never actually drove through, social media influencers guaranteeing returns

on big investments, that random WhatsApp message from someone trying to strike up a relationship with you. Scams are everywhere and I wanna hear about what you're seeing and how you handle it. Sean, if I recall correctly, didn't you talk with your dad in that scam series about a scam he experienced? I did. Yeah, my own dad was scammed out of tens of thousands of dollars a couple years

back. And that just underlines how everyone is susceptible to scams, which is why it's so important to keep talking about them. So, again, let me know your scam stories. Leave us a voicemail or text us on the nerd hotline at 901-730-6373. That's 901-730-NERD or email us at podcast at nerdballot.com. Let's get to this episode's money question segment. Stay with us. to this episode's Money Questions segment. Stay with us. We're back and we're answering your money questions to help you make smarter financial decisions. And we're taking on a few of your questions about taxes.

We did an episode about a month or so back about what you need to know around tax season 2025. And we got so many good questions from y'all since then that we decided to do another round. And I'm sorry to be a bearer of bad news, but the filing deadline is around the corner. People have a week at this point, so hop to it. So to help us answer your questions

on this episode of the podcast, we have NerdWallet tax writer Bella Avila. Bella, welcome back to Smart Money. Thanks, I'm glad to be back on. Bella, before we answer the listeners' questions, I think we should address an elephant in the room. Some people may be wondering whether they should even bother filing taxes with the new administration's talk

of abolishing income taxes in the IRS, rewriting the tax code, and relying on a tariff-based revenue system. How likely is this anyway? Right. There definitely has been a lot of chatter and uncertainty about what taxes will look like in the future, and I'm no economist, so I won't bet on whether or not those changes will at some point actually go into effect.

But I will say that I'm certain no policy changes have been made that affect how we do our taxes this filing season. So it's still business as usual and people should file as they normally would. And as we mentioned earlier, the deadline is coming up fast. April 15th. You need to file your taxes by then or request an extension. But note that an extension does not give you more time to pay your taxes. With that in mind, let's answer the first question from our listeners so folks can get busy filing if they haven't already.

This comes from Laurel B who sent us an email. Here it is. I just found out that I owe $2300 in taxes that I wasn't prepared for. I made $10,000 more last year and I did withhold extra for my paycheck but not enough. When I got a raise I didn't immediately think to change my tax withholding. My question is, do I pay out of my emergency fund and set myself back in savings, or is there some kind of no-interest payment plan for taxes? I will definitely work with my tax person to figure out how much I need to withhold going into next year.

Alright, Bella. What's the best way to pay for a surprise tax bill? And I definitely have never heard of a no interest payment plan for taxes. Yeah, it's really a case by case situation, I think. If people have the funds and it sounds like this listener has savings they can pull from, I'd say that's generally the route you'd want to go. But I also get that sometimes it's just not feasible to pay your taxes in one payment.

So another option is an IRS payment plan, which doesn't exempt you from penalties and interest for paying late, but it's still something to consider. I'm wondering how much Laurel has in their emergency fund because a surprise twenty three hundred dollar bill could well qualify as an emergency. But that said, they could opt for a payment plan and hold on to their cash, which isn't necessarily a bad idea. But it sounds like the listener needs to decide whether it's worth paying any interest and penalties.

If you file and you don't pay, you'll likely be hit with the failure to pay penalty, which is 0.5% of your unpaid taxes up to 25% of your whole bill. And then there's also interest to consider, which is subject to change each quarter, but it's currently 7% of any of your unpaid taxes. The failure to pay penalty, however, does get cut in half to 0.25% if you're on an

IRS payment plan. And it's worth noting that the interest you'll pay with an IRS plan is generally less than the interest you'd be charged for putting your bill on a credit card, so the payment plan would be the lower cost option. And I also encourage people to see if they qualify for a first time penalty abatement or penalty relief for reasonable cause. They each have their own set of criteria,

but if you qualify, your penalties could be removed or reduced. For listeners who may not know, the first time penalty abatement allows some taxpayers to remove a penalty from their record or get a refund for one they already paid. With penalty relief for reasonable cause, if you can prove you tried to pay your tax bill but couldn't because of a major life event like a house fire or a death in your

immediate family, for instance, you might get relief. And this also brings up a broader question about withholding. How can people ensure they're withholding enough taxes as the year goes along? Do you have any tools or resources you can share with listeners? If you have any big life changes, like getting a second job, getting married, or having a child, you'll want to review your W-4 form. This is because your filing status, deductions, and dependents all play into how much tax your employer withholds from your income.

However, you might not have to tweak your W-4 when you get a raise. This is because your employer calculates your withholding based on your earnings each pay period, not based on an estimate of what you might make throughout the year. But if you have multiple jobs or more complex taxes, you might want to review your withholdings as practice. That's right, Bella. That's something I definitely had to do. I know when my pay increased, I had a chat with a financial advisor, and she helped me to calculate how much I should withhold. I also played around with a withholding calculator. Yeah, and I also want to add that another reason this listener

may have a surprise tax bill is if they made money from a source that doesn't automatically withhold taxes. So think investment income or maybe a side gig. In these cases, you'll either want to set aside money for taxes yourself and make estimated tax payments or adjust your W-4 to have more tax taken out of your paycheck at your regular job. And like you mentioned, the IRS has a withholding estimator that can help you with the math.

All right, here's another one of your questions about taxes. This one comes from Simon who sent us a text message. Simon wrote, during the 2024 tax year, I worked for a company that required me to travel and work on-site in multiple states. I understand that I may need to file tax returns in each of these states, depending on their respective filing thresholds, some based on income and others on time spent working there. However, my W-2 only shows withholdings for North Carolina, in quotes, where the company headquarters is located and where I worked when not

traveling. I expected to see withholdings for the other states as well, given that my employer was aware of my work locations. This makes me question whether I actually need to file in those four other states, especially since I don't have detailed records of income earned in each state due to extensive overtime. Additionally, North Carolina doesn't appear to have any reciprocal agreements, which would have made my life far easier. Most sources recommend consulting a tax professional, but that isn't financially feasible for me

right now, and navigating the tax code on my own has been quite challenging. Could you provide any guidance on how to determine my filing obligations? All right, Bella. Simon finds themselves in a bit of a complicated tax situation, and I should probably remind our listeners that we don't give specific tax advice, but we'll give you some nerdy wisdom to consider. So can we start by discussing high level tax rules when it comes to living and working in different states? From my understanding, the state you live in may tax all your income, but the state you work in generally only taxes the income earned within that state. And each state has its own rules on this stuff.

Yeah, that's correct. The stuff can be complicated, so it's always best to check with your employer and each state's tax and revenue resources. The rules for who has to file a return and what kind of income is taxed and when can vary. However, it is good to know that just because you owe taxes to a state outside of your home state doesn't mean you'll be taxed on the same income twice. Every state has either what's known as reciprocity or alternatively a tax credit for taxes paid to another state to avoid double taxation. So for example, if you live in North Carolina but worked in Virginia for a few months, North Carolina would give you a tax credit for the

tax you paid to Virginia. And states don't automatically withhold taxes, right? Right, it's generally your employer's responsibility to withhold state income taxes if you're a W-2 employee. So it's not necessarily on you or the actual state to do so. And what can people who tend to work in different states throughout the year do to stay on top of their potential tax liabilities? How can they stay organized and get ahead so they're not overwhelmed come tax season? I'd recommend keeping a record of how long you work in each day

and how much you were paid when you were there. The rules around how employers withhold taxes for non-resident employees can be complicated. So having your own record of these things can help you double check that the information on your W-2 is correct come tax time. If questions arise, I definitely encourage you to reach out to your payroll team

to better understand why your withholding was calculated as it was and if you need to be sent a corrected W-2 form. The listener also mentioned not having enough to pay a tax professional. Can you lay out some options for people who can't afford to pay a tax professional? I'm wondering if going the DIY route might be a good idea here, given Simon's somewhat complicated tax situation. I do know there are free and lower cost options that taxpayers can explore.

DIY tax software is often really user-friendly. Even if you have fairly complicated taxes, you don't have to have in-depth knowledge of the tax code to file a return. Most software programs follow a pretty simple Q&A style format and avoid lots of tax jargon. So I think it's a great option for people who are on a budget. Even if you have to go with a paid software package, it'll likely still be cheaper than paying a pro. And with some packages, you can even upgrade to chat with a CPA if you get stuck or need some more help. And then I'd also encourage people to look into the IRS's free, in-person tax preparation services, like the volunteer income tax assistance and tax counseling

for the elderly programs. Only certain taxpayers qualify, but it's definitely worth checking out. Well, here is our last listener question, which comes from Rob, who sent us an email. Here it is. I recently discovered the NerdWallet podcast and normally keep to myself about finances, but have been emotionally overwhelmed by my tax situation and feel there may be others in my same situation. In short, I'm 45 years old, have three amazing teenage kids, and a wonderful wife who has been a stay at home mom and cancer survivor up until two years ago when she started writing for three local magazines as a 1099 employee. I work in IT

sales making around $150,000 a year. I've floated through a few different online tax solutions in the past, then moved to tax firms for a few years, and since my wife started as a 1099 employee, I'm frozen as to who to turn to or how we should file our taxes. I'm ashamed to admit that I haven't filed for two years, and I'm not sure how to best pull my family and me out of this hole we're in, and could use some guidance on the best financial and possibly emotional way forward to tackle our situation. Thanks, Rob.

It sounds to me like the listener's anxiousness is feeding the procrastination around filing their taxes. First of all, what are the repercussions of not filing your taxes for two years? It really depends on whether or not you owed taxes. A little-known fact is that if you don't owe taxes, there's technically no penalty for not filing. So that may ease some people's immediate worries.

However, that doesn't get you out of filing altogether. The IRS has a strict definition of who needs to submit a tax return based on income and other factors. So filing back taxes should be on your to-do list if you meet those requirements. On top of that, you only have three years to claim a refund. So if you fall into this category, getting on top of your taxes could result in some extra change in your pocket. So that could be a potential relief for Rob. The situation might not be as dire as they're imagining if they don't actually owe taxes.

But for people who do owe taxes, they could end up paying penalties and interest. Bella, we talked about this a bit earlier, but can you run through what this might look like? If you do owe taxes, along with the failure to pay penalty and interest I mentioned earlier, you may also be subject to the failure to file penalty, which is 5% of any tax due, up to 25% of your bill.

And if your return is more than 60 days late, the minimum penalty is $510 or 100% of the tax you owe. And I'll also point out that the IRS reduces your failure to file penalty by the amount of the failure to pay penalty. So you just pay 5% between the two. And while the penalty for not filing maxes out after five months, you'll still have to keep paying the penalty for paying late until it hits 25% of your unpaid taxes.

Let's turn to the emotional side of Rob's question because that might be the bigger hurdle to get over than filing their taxes. Sometimes people build up these financial boogeymen, whether it's saving as much as you might need for retirement or paying off a lot of debt or filing your taxes that you haven't touched in two years. And they get so paralyzed by that fear that they carry it with them and they become unable to do anything at all besides dwell on this. I think Rob has made some important progress by writing to us and acknowledging their issue. And really, once you get to that point, the next step is just setting aside an hour to at least start sorting this out.

I think time blocking a single hour where you don't do anything besides working on the problem at hand can be really beneficial and Rob might be surprised by how much progress they could accomplish in that short amount of time and also how good it will feel to take action on the stressor that's just been hanging over their head. Bella, what are your thoughts about how someone can work through the anxiousness that's keeping them from filing their taxes? Staying on top of these things can definitely be overwhelming, and I think we can all extend

ourselves some grace about not having everything sorted out all the time. But you're right, I think the best way to work through it is to spend some time researching how to get out of the situation. Penalties for not filing your taxes get worse as time goes on, so it's best to tackle things as soon as you can. Perhaps in this listener's case, that could look like setting aside a weekend dedicated to filing past year's taxes, and perhaps signing up for an IRS payment plan if necessary. Another important point that comes to mind from this listener's question is how important it is to have a tax system that works for you.

And that might include having a tax professional on deck, a software you use, or a general accounting system to keep track of your tax situation. It sounds like the listener has played with different options and not found the right system for them. How can someone determine the best system for them, Bella? First of all, you'll want to keep track of all the documents you get in the mail that are relevant to filing your return. So W-2s, 1099s, things like that. I recommend keeping an important documents box so when it's time to file you aren't digging through your junk drawers and wondering where you put them. As for how you should file your return, it really comes down to your budget and the

complexity of your return. If you feel overwhelmed by filing or just prefer to leave it to the pros, hiring a tax preparer is a great choice if you have the ability to. Just make sure you vet them before working with them, but I think if you're comfortable with filing yourself or maybe you have a simpler return, I'll reiterate that DIY tax software is generally really user-friendly and it's how I choose to file my taxes. And shameless plug, we do have a best tax software page comparing different programs

if you're not sure which one is right for you and wanna see how each software's pricing and packages stack up. And we'll include a link to that in this episode's show notes. Well, Bella Avila, thank you for coming on and answering these tax questions. Of course, thank you for having me. That's all we have for this episode.

Remember listener that we are here to answer your money questions. So turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdwallet.com. Remember you can follow the show on your favorite podcast app, including Spotify, Apple Podcast and iHeartRadio to automatically download new episodes. And here's our brief disclaimer. We are not financial or investment advisors. This nerdy information is provided for general educational and entertainment purposes, and

it may not apply to your specific circumstances. This episode was produced by Tess Vigeland. Hillary Georgie helped with editing, Nick Kersame edited our audio, and a big thank you to NerdWallet's editors for all their help. And with that said, until next time, turn to the nerds!