|
|
Whether you prefer paper folders in a shoebox or e-files on your computer, keeping tax records and/or copies of important documents is a must for any household and everybody knows that.
This newsletter is intended to give you a fair idea of what kind of tax documents you are supposed to keep and for how long.
|
|
|
|
|
|
|
|
Of course, it is pretty obvious that you are supposed to keep any kind of tax related documents. To make that easier, establish a central location where everyone in your household can put tax-related records all year long. Anything from a shoebox to a file cabinet works in theory although the preferred place is a folder on your computer.
It would be exhausting and quite unpractical to make an extensive list of the kind of documents you should keep, especially considering the length of the federal income tax code. For your convenience, here are some examples of the most usual tax-related documents that you should keep:
|
|
|
|
W-2 forms and pay stubs for the year;
|
|
|
|
|
Mortgage payment stubs and/or home purchase closing statement;
|
|
|
|
|
Previous year's tax return (for quick reference and comparison);
|
|
|
|
|
Receipts from anything you might claim as an itemized deduction;
|
|
|
|
|
Receipts from any charity (e.g. for church tithes, disaster relief donations, etc.); |
|
|
|
|
Canceled checks (especially for IRA contributions and other deductions); |
|
|
|
|
Credit card statements and bank statements (to verify any deductions); |
|
|
|
|
|
|
|
|
Medical bills (especially if they exceed 10% of your income); |
|
|
|
|
1099-G form for deducting state or local income taxes; |
|
|
|
|
1099 forms (for any income paid to you); |
|
|
|
|
Mobile phone bills (especially if you made charitable donations by text message); |
|
|
|
|
Starting with tax year 2014, you were required to keep records of your own and your family members’ health care insurance coverage, including records of employer provided coverage or premiums paid and type of coverage for private coverage, so you can show that you and your family members had and maintained required minimum essential coverage.
Although the tax reform bill eliminates the ACA’s individual mandate penalty, this repeal does not take effect until 2019. As a result, individuals continue to be required to comply with the mandate for 2017 and 2018. Individuals who are liable for a penalty for failing to obtain acceptable health coverage in 2018 will be required to pay that penalty when they file their federal income taxes in 2019. As a result, some taxpayers may be required to pay the individual mandate penalty in early 2019, based on their noncompliance for the 2018 tax year. |
|
|
|
|
| If you are in business yourself, there is no particular method of bookkeeping you must use. However, you must use a method that clearly and accurately reflects your gross income and expenses. The records should substantiate both your income and expenses. Here are some examples: |
|
|
|
Payment records (canceled checks, credit cards payments);
|
|
|
|
|
Invoices/bills cross referencing the business expense;
|
|
|
|
|
Receipts that itemize purchases and method of payment;
|
|
|
|
|
Records of donations or charitable cash or non- cash contributions;
|
|
|
|
|
|
Receipts for meals and entertainment; |
|
|
|
|
Mileage records; |
|
|
|
|
Income records. |
|
|
|
|
If you have employees, all your employment tax records. |
|
|
|
If you itemize deductions, don’t forget to keep organized records of each charitable contribution you make, or medical expense. Many people claim the standard deductions because they did not have their records in order or because it is just easier, even though it would be to their advantage.
The length of time you should keep a document depends on the action, expense, or event which the document records. Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out.
The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax. The IRS recommends the following: |
|
|
|
You should keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
|
|
|
|
|
|
|
|
|
Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
|
|
|
|
|
Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
|
|
|
|
|
Keep records indefinitely if you do not file a return.
|
|
|
|
|
Keep records indefinitely if you file a fraudulent return. |
|
|
|
|
Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later. |
|
|
|
| There are some other records to be kept indefinitely or for longer periods of time: |
|
|
|
Records relating to property (real estate or stock) should be kept indefinitely to show the amount of gain or loss if the property is sold, plus the three-year statute of limitations;
|
|
|
|
|
Copies of your tax returns should also be kept indefinitely;
|
|
|
|
|
Records relating to a claim for a tax refund or tax credit based on bad debts or losses on worthless securities should be kept for at least seven years;
|
|
|
|
|
Records relating to a net operating loss which can be carried back 5 years and forward 20 years should be kept until all operating losses are used and the carry- forward term expires plus the three-years statute of limitations;
|
|
|
|
|
|
|
|
To make your mountain of documents easier to store, the best option is to scan and keep them as PDF files. Remember to back up your computer as well, so you don’t have all your eggs in one basket.
Keep in mind that those with better records pay less tax. It’s best to start your new and improved system of tax organization at the beginning of the year, but later in the year is good enough too. If you have someone who prepares your taxes, organization can save you not just time, but money as well. If you have all your ducks in a row, that means less time your tax preparer needs to spend looking for information, which should mean a lower rate to prepare your return.
If you have any doubts about the records you need to keep, contact your tax or financial advisor before taking any rushed action.
And, also very important, make sure you come back every week for more news and useful information for your taxes and financial health. |
|
|
