With a
sigh you are relieved that yet another tax return has been sent off to the
government. Another 12 months before you need to do this again. But before you
close that tax file, there is still some work to do. If the IRS or state
revenue department selects your return for review, you will need to be
prepared. Here is what you need to know:
Record Keeping Tips
- Normally three years. Normally tax records should be kept for three years
from the later of the tax filing due date, the date you filed your taxes,
or the date you paid your tax in full.
- Some documents should be saved indefinitely. This includes things like:
- Your tax return
- Records related to a home purchase or sale
- Stock transactions
- Business/Rental records
- The IRS does not require any special record keeping
system. You just need to keep all
documents that can support information on your tax return.
- Here are common records worth retaining:
- Canceled checks
- Invoices
- Other proof of payment for claimed deductions
- Bank and credit card statements
- Mileage logs
- Receipts with time; place; and purpose noted
- Be mindful of other record retention requirements
- State record retention requirements are often 6 months
to 1 year longer than Federal requirements
- Social Security records often need to be proofed to
ensure they match your pay stubs
- Insurance, banking, and estate management may require
other records
- Federal retention requirements become 6 years if your
return understates your tax obligation by more than 25%, and the record
retention period is indefinite if fraud is involved.
Keep a good system
So the build up of
paperwork does not overwhelm your attic, at the end of the tax year rotate your
records. Decide how many years of records must be retained. Then count back from
your current tax return filing year and shred unneeded, older documentation.
Create new empty files for the current tax year to save receipts for the coming
year. Consider scanning records to keep digital copies. A final word of
caution. If you are unsure whether to retain or shred, keep it unless you know
the document can be replaced.
No comments:
Post a Comment