Which records should you keep? You should keep information
that you and the IRS need to determine your correct tax. Everyone should keep
the following records.
Copies of tax returns. Keep copies of your tax returns as
part of your tax records.
Your tax returns can help you prepare future returns and
amended returns.
After you die, copies of your tax returns and other records
can be helpful to your survivors or the executor or administrator of your
estate.
Proof of income and expenses.
Income Form(s) W-2,
1099, and K-1
Bank and brokerage statements
Business and hobby income records
Records relating to sale of business property
Expenses
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Sales slips, invoices, receipts
Cancelled checks or other proof of payment
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Donations
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Details of cash and noncash contributions
Written communications from qualified charities
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Your Home
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Closing statements, including any refinance documents
Purchase and sales invoices
Receipts for improvements
Insurance records
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Investments
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Brokerage statements
Mutual fund statements
Form(s) 1099 and 2439
Other basis documentation
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IRAs
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• Forms 1099-R, 5498, and 8606 for each year until all IRA
funds have been distributed.
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Records for Special Situations
Some items require specific records, in addition to the
basic records of income and expenses.
Alimony. If you pay or receive alimony, keep a copy of your
written separation agreement or the divorce, separate maintenance, or support
decree. If you pay alimony, you need to know your former spouse’s Social
Security number.
Business use of your home. Keep records that show which part
of your home is used for business and the expenses related to that use. Child
care providers should also keep track of hours open for business, as well as
hours spent in preparation and clean up.
Gambling. Keep an accurate diary of winnings and losses.
Required information includes:
Date and type of gambling activity. Gambling establishment name and address, and names of
persons present with you. – Amount you won or lost.
Tax credits. Each tax credit includes special record
requirements. Examples include:
Provider’s name, address, and taxpayer ID number for the
Child Tax Credit.
Physician’s certification for the Credit for the Elderly or
the Disabled.
School records for the education credits.
Vehicle records. If you use your own car for business,
medical transportation, or qualifying volunteer work, keep a mileage log that
includes the date, destination, and purpose of each trip. You also need to know
how many miles you drove for other purposes, such as commuting and personal
use. Your vehicle records should include purchase or lease papers and loan
records. You may receive a larger deduction if you keep records of gas
purchases, maintenance costs, etc., in addition to mileage.
What is Proof of Payment?
The records you keep provide the documentation to support
the deductions and expenses claimed on your tax return. You must always keep
documentation of the reason for the payment. Other documents, such as
statements and receipts, will help establish that the item is allowable on your
tax return.
Account statements. Account statements from your financial
institution are acceptable as proof if they provide the information shown
above.
Pay statements. You may have deductible expenses withheld
from your wages, such as union dues, medical insurance premiums, and charitable
contributions. Keep year-end or final pay statements to prove payment of these
items.
Mortgage interest. Form 1098, Mortgage Interest Statement,
documents interest you paid. Be sure to verify that the amount is correct.
How
Long Should You Keep Tax Records?
The IRS says you must keep your records for as long as they
may be needed for the administration of any provision of the Internal Revenue
Code, which means you must keep records of items shown on your return until the
period of limitations for that return expires. The period of limitations is the
time during which you can amend your return, claim a credit, or be assessed
additional tax by the IRS.
Asset Records
Keep records of acquisition date and cost basis for each
business or investment asset until the period of limitations expires for the
year in which you dispose of the asset. For example, suppose you sold a piece
of business equipment in 2010 and you meet condition (1) above. You must then
keep records of that asset until at least April 15, 2014 (three years after the
due date for your 2010 tax return).
Electronic Records
Paper records take up a lot of space, and they can fade or
be damaged. Many people prefer to keep electronic records instead of paper
records.
All requirements that apply to hard copy records apply to
electronic records, including record retention periods.
If you scan or otherwise transfer your tax records to an
electronic format, you must be able to store, preserve, retrieve, and reproduce
the records in a legible, readable format.
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