The key to avoiding headaches at tax time is keeping track of your receipts and other records throughout the year. Whether you use an excel spreadsheet, an app, an online system or keep your receipts organized in a folding file organized by month, good record-keeping will help you remember the various transactions you made during the year.
Taxpayers should add tax records to their files throughout the year as soon they receive them. This includes Notice 1444, Your Economic Impact Payment, and unemployment compensation documentation. Reviewing your recordkeeping systems now – or setting one up if you don’t already have one in place – will pay off when it comes time to file your 2020 tax return next spring. Keeping good records also helps document any deductions you’ve claimed on your return and you will need this documentation should the IRS select your return for audit.
Normally, tax records should be kept for three years, but some documents – such as records relating to a home purchase or sale, stock transactions, IRA, and business or rental property – should be kept longer. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return such as:
- Unemployment compensation
- Bills
- Credit card and other receipts
- Invoices
- Mileage logs
- Canceled, imaged, or substitute checks or any other proof of payment
- Any other records to support deductions or credits you claim on your return
Taxpayers should also keep records relating to property they dispose of or sell. These types of records are used to figure their basis for figuring gains or losses.
As a reminder, taxpayers should keep records for three years from the date they filed the return. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.Good record-keeping throughout the year saves you time and effort at tax time. For more information on what kinds of records you should keep or assistance on setting up a recordkeeping system that works for you, please call the office.