Often I am asked: “How long should I keep paper records?” The answer to this question varies depending on whether you are filing a personal tax return or taxes for a business you own and operate from your home. Publication 552 (Rev. 4/2005) as published by the Department of the Treasury, Internal Revenue Service, lists the guidelines for how long records should be kept. Publication 583 gives the guidelines for “Starting a Business and Keeping Records.” If you have questions regarding the length of time to keep records for a particular need, you may want to consult with your certified public accountant.
Keeping Your Tax Records Organized
When the time comes to prepare your taxes, these documents will be easy to locate, not to mention the fact that by having an established location for them, they will not be miss-placed during the year. This list is not meant to be an entire list of documents that you receive in the mail—you may receive some that are not listed here and some that are listed, you may not receive. The idea is to have a location for you to store these types of documents that you get one time only, or in the case of donations perhaps several, so that you can quickly locate them when it is time to prepare your return. It does not make a lot of sense to create a folder for each type of form—that will just take up more space in your filing system.
Why Keep Records
- To use when preparing your tax return
- To support items reported on your tax return
- To identify sources of income
- To track expenses
- To keep the cost basis of property or investments
Keeping Your Tax Records Organized
The IRS does not require you to keep your tax records organized a certain way. There are however a few things that you can do to make your life easier when it comes time to prepare your taxes. The last thing you want to do is spend all of your time looking for the documents needed in order to prepare your taxes. I personally have witnessed many of our clients that have not been able to file their taxes for several years because they could not find all of the information they needed—which is usually why we are called in to help them set up a system to organize their papers, so they can begin to file taxes on time, rather than filing an extension or not filing at all.
Tips for Keeping Your Tax Records Organized
1. Establish a file folder labeled Taxes 2006 (insert the current year on the label). This folder will be used to store tax related documents such as donation receipts and the forms you receive in the mail in January that you need to prepare your taxes. Some of the forms you may receive in the mail include:
- W-2’s for yourself, spouse and dependent children
- 1099-G (Unemployment)
- 1099-INT (Interest Statements for Mortgage, Savings, Escrow and U.S. Bonds)
- 1099-DIV (Dividend Statements for Stocks and Bonds)
- 1099-MISC (Income Statements for Income Property and Equipment)
- 1099-R (Statements for Pensions, Annuities and IRA distributions) Social Security statements show benefits
- Property Tax Documents
When the time comes to prepare your taxes, these documents will be easy to locate, not to mention the fact that by having an established location for them, they will not be miss-placed during the year. This list is not meant to be an entire list of documents that you receive in the mail—you may receive some that are not listed here and some that are listed, you may not receive. The idea is to have a location for you to store these types of documents that you get one time only, or in the case of donations perhaps several, so that you can quickly locate them when it is time to prepare your return. It does not make a lot of sense to create a folder for each type of form—that will just take up more space in your filing system.
2. If you make a lot of property donations, such as used clothing, toys, computer equipment, or household items, consider using “It’s Deductible” from Turbo Tax.
Using this software it will help you:
