What pieces of paper do I need to keep in order to do my taxes?
Keep detailed records of your income, expenses, and other information you report on your tax return. A good set of records can help you save money when you do your taxes and will be your trusty ally in case you are audited. There are several types of records that you should keep. Most experts believe it’s wise to keep most types of records for at least seven years, and some you should keep indefinitely.
What type of records do I need to keep?
Keep records of all your current year income and deductible expenses. These are the records that an auditor will ask for if the IRS selects you for an audit. Here’s a list of the kinds of tax records and receipts to keep that relate to your current year income and deductions:
- Income (wages, interest/dividends, etc.)
- Exemptions (cost of support)
- Medical expenses
- Charitable contributions
- Child care
- Business expenses
- Professional and union dues
- Uniforms and job supplies
- Education, if it is deductible for income taxes
- Automobile, if you use your automobile for deductible activities, such as business or charity
- Travel, if you travel for business and are able to deduct the costs on your tax return
While you’re storing your current year’s income and expense records, be sure to keep your bank account and loan records too, even though you don’t report them on your tax return. If the IRS believes you’ve under-reported your taxable income because your lifestyle appears to be more comfortable than your taxable income would allow, having these loan and bank records may be just the thing to save you.
How long should I keep these records?
Keep the records of your current year’s income and expenses for as long as you may be called upon to prove the income or deduction if you’re audited. For federal tax purposes, this is generally three years from the date you file your return (or the date it’s due, if that’s later), or two years from the date you actually pay the tax that’s due, if the date you pay the tax is later than the due date. IRS requirements for record keeping are as follows:
- You owe additional tax and situations (2), (3), and (4), below, do not apply to you; keep records for 3 years.
- 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 for 6 years.
- You file a fraudulent return; keep records indefinitely.
- You do not file a return; keep records indefinitely.
- You file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.
- Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
Should I keep my old tax returns? If so, for how long?
You may want to keep your old returns forever, especially if they contain information such as the tax basis of your house. Probably, though, keeping them for the previous three or four years is sufficient. If you throw out an old return that you find you need, you can get a copy of your most recent returns (usually the last six years) from the IRS. Ask the IRS to send you Form 4506, Request for Copy or Transcript of Tax Form. When you complete the form, send it, with the required small fee, to the IRS Service Center where you filed your return.
What other types of tax records should I keep?
You need to keep some other types of tax records and receipts, because they tell you how much you paid for something that you may later sell. Keep the following types of records:
- Records of capital assets, such as coin and antique collections, jewelry, stocks, and bonds.
- Records regarding the purchase and improvements to your home.
- Records regarding the purchase, maintenance, and improvements to your rental or investment property.
How long should I keep these records? You need to keep these records as long as you own the item so you can prove the cost you use to figure your gain or loss when you sell the item.
What kind of record-keeping system do I need?
Unless you own or operate your own business, partnership, or S corporation, record-keeping does not have to be fancy. Your record-keeping system can be as casual as storing receipts in a box until the end of the year, then transferring the records, along with a copy of the tax return you file, to an envelope or file folder for longer storage. To make it easy on yourself, you might want to separate your records and receipts into categories, and file them in labeled envelopes or folders. It’s also helpful to keep each year’s records separate and clearly labeled. If you have your own business, or if you’re a partner in a partnership or an S corporation shareholder, you might find it valuable to hire a bookkeeper or accountant.