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Good recordkeeping prevents many tax headaches
By
Kay Bell
• Bankrate.com
Many tax-time headaches can be avoided if you
keep track of your receipts and other tax-related records throughout
the year. With the documentation at your fingertips, there's no
question about the legality of that added deduction or your eligibility
for a tax credit.
You should keep any and all documents that could
affect your federal tax return. This includes bills, receipts, invoices,
mileage logs, canceled checks or any other proof of payment. The
Internal Revenue Service doesn't require you to keep the records
in any particular way, but it recommends you keep them in an orderly
manner. Most taxpayers find the easiest way is by year and type
of income or expense.
Here is what the IRS considers basic records:
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FOR your ...
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KEEP as basic records ...
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Income
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- Form(s) W-2
- Form(s) 1099
- Bank statements
- Brokerage statements
- Form(s) K-1
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Expenses
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- Sales slips
- Invoices
- Receipts
- Canceled checks or other proof of payment
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Home
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- Closing statements
- Purchase and sales invoices
- Proof of payment
- Insurance records
- Form 2119 (if you sold a home before 1998)
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Investments
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- Brokerage statements
- Mutual fund statements
- Form(s) 1099
- Form(s) 2439
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How long should you hang onto these documents?
Normally tax records should be kept for three years. That's how
long the IRS has to initiate a routine audit of your return. But
some documents, such as those reflecting a home purchase or sale
or expenses connected with stock transactions, should be kept longer.
Get in the habit of collecting your tax records
and putting them in an easy-to-find location as you incur the expenses.
Good recordkeeping throughout the year saves you time and effort
when tax season rolls around. Even if you hire a paid preparer to
do your taxes for you, your planning will help the pro complete
your return more quickly and accurately.
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