|
Why Should I Keep Records?
Not only does having organized records make it easier and
less frustrating for you to file your tax return, it also
enables you to explain an item on your return that the IRS
might question, and could prevent you from having to pay
additional taxes and penalties for unsubstantiated items.
What Records Should I Keep?
Your checkbook can help you remember income and expenses that
should be reported on your tax return, but the checkbook and
cancelled checks alone aren't sufficient documentation to
prove the deductibility of an expense.
In addition to proof of payment (cancelled checks, credit
card receipts), you also need invoices, |
|
receipts, sales slips, or other written documentation
that spells out exactly what you paid for.
Deductions that you need to document may include alimony, charitable
contributions, mortgage interest, child care expenses, and real estate
taxes. If you make payments
in cash, get a dated and signed receipt showing the amount and a
description.
To prove that you correctly claimed income from investments such as
stocks, bonds, and mutual funds, you need to be able to determine your
basis and whether you have a gain or loss when you sell. Your records
should show the purchase price, sales price, and commissions, dividends
received in cash or reinvested, stock splits, load charges, and original
issue discount (OID). An Excel spreadsheet is a great way to track this
information, but even a handwritten schedule will do.
If you have deductible expenses withheld from your paycheck, such as union
dues, medical insurance premiums, or 401(k) contributions, keep your pay
stubs as proof of payment.
Specific records you should keep include:
Form W-2 and 1099
Bank statements
Brokerage and mutual fund statements
Form K-1 (for partnerships)
Sales slips
Invoices
Credit card receipts
Canceled checks or other proof of payment
Home purchase and sales agreements, closing statements, and insurance
records
How Long Should I Keep Records?
Although legally you need only keep tax records for three years from the
date you filed the related income tax return, you should keep a copy of
your actual tax returns, W-2s, 1099s, etc., indefinitely. The IRS destroys
original tax returns after three years, and you or your heirs may need
information from the returns at some point, or you may need to prove your
earnings for Social Security purposes. |
Home
