KEEPING YOUR TAX RECORDS
When it comes to your taxes, good records are the best protection you can have if the IRS decides to audit your returns. But just as important as your effective recordkeeping are the measures you take to make sure that your records are kept safe.
A good set of records may help you cut your taxes. Detailed records reduce the chance that you will overlook deductible expenses when your tax return is prepared. Nothing is more frustrating than knowing you incurred deductions yet not being able to prove them.
Explicit records provide the best assurance of a favorable outcome if you are audited. Oral testimony alone is seldom enough to prove the deductions you claim on your tax return – auditors want to see a paper trail of receipts, logs, etc.
When you’re missing adequate back up records, it can cost a great deal in time and effort to get duplicates.
Good records help others who might have to handle your financial affairs in case of an emergency.
How you track your income is largely dependent on the type of income you are receiving. For certain types of income, you will receive statements from the income payers to tell you the amount.
When you receive these statements, you should always compare it to your own records. If there is a discrepancy in the amount reported, you report it to the payer to correct the information.
No one method is the only way to maintain your records. What’s important is to develop a system that best fits your situation, and stick with it.
- Bookkeeping Software
- Spreadsheet Method
- Manual Lists
Methods for retaining documents
- File Folders
KNOWING WHEN TO DISCARD RECORDS
Taxpayers often question how long records must be kept and how long the IRS has to audit a return after it is filed.
- Tax Returns: 3 years from the return date or the date the return what filed, whichever is later.
- Stock Acquisition Data: 4 years after the year you sell the stock if you own stock in a corporation.
- Stock and Mutual fund Statements where you Reinvest Dividends: 4 years after the final sale.
- Tangible Property Purchase and Improvement Records: 4 years after the property is sold.