Amador Pedro Accnts
Osborn William E CPA
Birky Aaron J Cpa
Hardy Grant L CPA
Salt Lake City
Bier Accounting Services
Comprehensive Accounting Service
Brennan & Brosnan LLC
Allikatz Business Services
West Palm Beach
Accounting and Tax Record Keeping Tips
One of the most common reasons for stress around tax time generally relates to the frantic rush to gather together all those receipts and documents. Many people fall into one of two categories when it comes to record keeping-either they keep everything, terrified to throw it away in case they should need it later on or they throw everything away and then realize in horror they can’t prove their tax deductions. If you find yourself wondering exactly what you should keep and what can be thrown away, you aren’t alone. Read on for more tips to help you understand more about this confusing process.
First, if you fall into the category of people who tend to throw everything away, it is important to recognize that some records must be kept. It makes the process of filing your tax return less frustrating and can prevent additional penalties for items you declared but otherwise wouldn’t be able to prove.
Now, on to which records should be kept. Ideally, you will need to keep proof of payment regarding any expenses you plan to file on your tax return. This includes cancelled checks and credit card receipts. In addition; however, you will also need to retain sales slips, receipts, invoices and any other documentation that details exactly what you paid for. Remember, it isn’t enough to show how much you paid for something you must be able to prove exactly what it was for.
You also need to make sure you keep any documentation related to deductible items such as charitable contributions, child care expenses, alimony, mortgage interest and real estate taxes. Be sure you always have a dated and signed receipt for these items that also includes a description and the amount you paid.
Income from invests such as bonds, stocks and mutual funds can also prove to a problem for many tax payers if documentation is not retained. It is imperative that you be able to prove whether you showed a loss or gain when investments were sold. Therefore, you need to retain documentation showing how much you paid, how much the investment sold for and any commissions or dividends that were received. You also need to retain documentation related to any charges relevant to the investment.
Another area where many people seem to fall short is expenses that are deducted from their paycheck. While it sounds simple enough, the truth is that many people simply do not keep their pay stubs. Those little slips of paper; however, can come in very handy for proving payment for items such as medical insurance premiums, union dues and retirement contributions.
You should also make sure you keep copies of: bank statements, home purchase and sales agreements, real estate closing statements as well as Form W-2 and 1099.
Legally, you only need to retain your tax records for three years from the day you filed the return. That said; however, it is a good idea to make sure you keep a copy of your actual returns for much longer. While many people do not realize it, original tax returns are destroyed by the IRS after three years. If for some reason you, or your heirs, ever need that information later on, there will be no way to obtain it if you didn’t keep a copy.
When you do purge documents that are no longer needed, make sure you destroy them using a cross-cut paper shredder to prevent possible identity theft.
The purpose of this article is to provide general information on tax matters. It suggests general tax tips that may be appropriate in certain situations. The information and opinions are generalizations and may not apply to all taxpayers. It is important that you seek appropriate professional advice before implementing any of the tax ideas suggested.