Do you plow madly through lots of papers looking for the documents you need when tax time comes around? Are you uncertain about which records you should keep and which ones you can throw away?
There’s no time like the present to make your life a little easier and guarantee that you don’t miss any deductions by organizing your record keeping system and keeping it up-to-date.
Having organized records makes it easier and less maddening for you to file your tax return and it helps you to clarify an item on your return that the IRS may question.
In addition to confirmation of payment (cancelled checks, credit card receipts), you should also keep invoices, receipts, or other printed records that show 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. Don’t forget, when making payments in cash always get a signed and dated receipt showing the amount and a description.
If you have deductible expenses withdrawn from your wages, such as union dues, health insurance premiums, or 401(k) contributions, keep your pay stubs as evidence of payment.
Specific records you should keep consist of:
- Form W-2 and 1099
- Bank statements
- Sales slips
- Credit card receipts
- Canceled checks or other proof of payment
Legally you only need to keep tax records for three years from the day you filed your tax return. You should, however, keep a copy of your actual tax returns forever. The IRS destroys original tax returns after three years, and you or your heirs may want information from the returns at some point, or you may need to show your income for Social Security purposes.