How to Keep Adequate Tax Records

For many people the hardest part of doing their taxes is just finding the records that they need to enter the correct numbers on their return. Simply knowing where all of your tax records are located can be a huge help to many filers. This article shows you what you need to do in order to keep your tax records at your fingertips.

Things You'll Need

• A safe place to store your records

Instructions

1. Create a place where you can easily access and organize all of your various tax records and statements. Then whenever you receive any kind of documentation that may have tax ramifications of any kind, you can just pitch it into your file for tax season.

2. Put all of your year-end tax forms such as W-2s and 1099 forms in the file, but you should also make up a three-ring binder for all of your financial statements such as brokerage or K-1 forms. Although your 1099 forms will have much of the information you need, your monthly statements will often contain necessary basis information that you will need to refer to in order to compute gain or loss on the purchase and sale of your investments.

3. Save the receipts from all of your charitable contributions and provide copies of them to your preparer, who will need them in order to deduct them on your return. (The IRS now mandates that all chartiable contributions must be provable.) Your noncash charitable contribution reciepts should ideally have a dollar value assigned to them by the recipient for easy computation.

4. If you are self-employed, then you will need to keep detailed, accurate records of all of your business income and expenditures. A computer program such as Quickbooks software can be very helpful here, especially if your tax program or tax preparer allows you to download your information directly into the return.

5. Put other records such as invoices, insurance statements and home mortgage and property tax records into your file as well. Credit card reciepts and back records may also be needed as backup proof of expenditures in certain situations. While you may not want to go to the trouble of keeping these records in your tax file, it may be wise to use banking and credit card carriers that offer easy Internet access to all of your past records. Many banks now provide downloadable copies of cancelled checks for their customers right online. Finally, it is wise to keep a copy of your divorce decree in your tax records as well, because the divorce decree usually stipulates who will be able to claim which dependents each year. This decree must often be shown to tax preparers as well.

6. Keep all pertinent tax records for a minimum of three years, but five to ten years is probably more prudent. In fact, if you can keep your records permanently, that is best of all. After five or ten years, you can probably remand old records to storage, but it is always a good idea to have them somewhere just in case.

Tips & Warnings

• Keeping your records in your home office or storage area is always a good idea, preferably in a locked drawer in a fireproof cabinet.