Lots of self-serve products and programs have made it easy for people to do their own taxes each year. But whether you do your own taxes or take them to an expert in the field there are some small and simple things you can do to help make your next tax season less stressful. If you stay on top of documentation and organize your tax relevant records, it will make it a lot easier to prepare your taxes or substantiate your return should you be selected for an audit.
1. Keep All Documentation
For the most part, the IRS doesn’t require any specific method for keeping your records. A good rule of thumb is to keep any and all documentation that could have an affect on your tax return. It’s best if you keep them organized in a specific place, and start at the beginning of the year. Don’t wait and try to recreate or piece together proof of expenses or income later in the year.
2. Record to keep for 3 Years
It’s important for individual taxpayers to keep the following records that could affect their tax returns, for three years:
• Invoices
• Credit card receipts
• Bills
• Mileage logs
• Canceled checks, or any other type of proof of payment
• Any other records that would support expenses or deductions claims on any return.
It’s also important to keep documentation on any property you own until at least three years after you dispose of the property through sale or other means. Good things to hold on to for that period of time are:
• Documents on the purchase of a home, or home improvements
• Records of stocks and other investments
• Transactions involving Individual Retirement Arrangements
• Any records on rental properties.
3. Small Business Owners Must Keep Records for 4 years
This tip applies to small business owners. You must keep your tax relevant records for at least four years. However, this must be from when your taxes are due, or when they are paid, whichever is later. Records that small business owners must keep are:
• Any record of gross receipt: Receipt books, bank deposit slips, cash register tapes, invoices, credit card slips and 1099 MISC.
• Any record or proof of purchase: Invoices, credit card slips, cash register tapes, and canceled checks.
• Any documentation of expense: Bank statements, credit card sales receipts, canceled checks, and petty cash slips.
• Documentation of assets: Sales and purchase invoices, closing documents for real estate, and canceled checks.
Keeping this documentation and correctly filing your taxes doesn’t make you exempt from an audit but it sure will help you should one arise. If you can keep an organized set of records it will make it easier on yourself or your tax preparer to do your taxes next year, and to provide the evidence necessary should the IRS come knocking on your door.
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