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
  • Taxes
  • Interest
  • 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 underreported 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.

For some states, you should keep your records for four years.

 

Should I keep my old tax returns? If so, for how long?

Yes, keep your old tax returns.

One of the benefits of keeping your tax returns from year to year is that you can look at last year’s return while preparing this year’s. It’s a handy reference, and reminds you of deductions you may have forgotten.

Another reason to keep your old tax returns is that there may be information in an old return that you need later.

One example of information you may need years later is the tax basis of your home. If you sold your home some years ago and replaced it with the one you live in now, you filed a Form 2119 with your old return. On Form 2119, you figured the tax basis of your current home. When you sell your current home, the starting point to find out what your gain (or loss) is comes from the Form 2119 for the old house.

Audits and your old tax returns

Here’s a reason to keep your old returns that may surprise you. If the IRS calls you in for an audit, the examiner will more than likely ask you to bring your tax returns for the last few years. You’d think the IRS would have them handy, but that’s not the way it works. Your old returns are more than likely in a computer, in a storage area, or on microfilm somewhere. Usually what your IRS auditor has is just a report detailing the reason the computer picked your return for the audit. So having your old returns allows you to easily comply with your auditor’s request.

How long should I keep my old tax returns?

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.

 

Are there any non-tax records I should keep?

There are other records you should keep, even though they don’t appear to have any use for your tax returns. Here are a few examples:

  • Insurance policies, to show whether you were to be reimbursed in case you suffer a casualty or theft loss, have medical expenses, or have certain business losses.
  • Records of major purchases, in case you suffer a casualty or theft loss, contribute something of value to a charity, or sell it.
  • Family records, such as marriage licenses, birth certificates, adoption papers, divorce agreements, in case you need to prove change in filing status or dependency exemption claims.
  • Certain records that give a history of your health and any medical procedures, in case you need to prove that a certain medical expense was necessary.
  • These categories are the most universal and should cover most of your recordkeeping needs. Everyone’s needs are unique, however, and there may be other records that are important to you. Skimming through our Tax Library Index might highlight other categories that apply to you.

 

 

What kind of recordkeeping system do I need?

Unless you own or operate your own business, partnership, or S corporation, recordkeeping does not have to be fancy.

Your recordkeeping 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.

Do you contribute to charity?

If you donate to a charity, you must have receipts to prove your donation.

A canceled check will often be sufficient, unless you make a single donation of $250 or more, in which case, you must have a receipt from the charity that shows the date, the amount you donated, and other specific information about the contribution.

Besides deducting your cash and non-cash charitable donations, you can also deduct your mileage to and from charity work. If you deduct mileage for your charitable efforts, keep detailed records of how you figured your deduction.

Are you employed by someone else?

If you work for someone else and spend your own money on company business, keep good records of your business expense receipts. You will need these records to either get a reimbursement from your employer or to prove business-related deductions that you take on your taxes.

Do you have income from tips?

If you make tips from your job, the hand of the IRS reaches here too, and if you are ever audited, the IRS will be interested in records of how much you made in tips.

Do you own property?

If you own property, be particularly careful to keep receipts or some other proof of all your expenses, especially for repairs and improvements.

Do you hire domestic workers?

It’s important to keep accurate information about who works for you, including nannies and housekeepers, when and where they worked for you, and how much you paid them for the work.

Do you have a business?

If you have a business, you must keep very careful records of all your business expenses, including vehicle mileage, entertainment expenses, and travel expenses.

If you have a business, just because you have cash in your pocket doesn’t mean you’re in the black on the books. Keeping up-to-date records of all transactions and costs will not only help you tax wise, it will tell you if your business is actually profitable.

Do you travel for your business?

If you travel for business, keep good receipts and logs of all your travel expenses, including those for meals and entertainment. You will need this information whether you work for yourself or for someone else.

 

How do I go about obtaining an extension if I can’t make the April 15th deadline?

It is relatively easy to get a four-month extension until August if you can’t get your tax return filed by April 15th. You must file an IRS Form 4868, Application for Automatic Extension of Time to File US Individual Income Tax Return by April 15th. Getting an extension does not give you any more time to pay if you owe the IRS. You should include an estimated tax payment with your request for an extension, because if you do not pay at least 90% of your taxes by the April 15th deadline, you will be hit with penalties and interest when you finally do file your return.

Should I still file by the April 15th deadline if I don’t have the money to pay my taxes?

It is definitely in your best interest to at least file by the deadline, even if you can,t pay for your taxes then. The penalty for failing to file a tax return by the deadline is %5 per month of the owed taxes. However, as long as you file by the deadline, even without payment, the penalty is only 5% per month of the owed taxes. Partial payment will lessen the penalty, so if possible, include a check with your return, even if it is not for the total amount due.

What happens if my tax return is filed late?

If filed late without reasonable cause, a penalty for each month the return is late may be imposed. The IRS will also charge interest on the tax you owe.

 

Is it better to file my return early or should I wait until the April 15th deadline?

Whether to file your return early or not really depends on whether you expect to receive a refund or expect to owe money to the IRS. Generally speaking, people who are going to receive a refund usually do, and should, file early while people who owe the IRS should wait until closer to the deadline to pay. Why part with your money unnecessarily early?

Does a tax return have to be filed in behalf of someone who died this year?

As morbid as it may sound, an income tax return still has to be filed for someone who died during the year. The burden of filing the tax returns falls upon a survivor or the executor of the estate. Regardless of when the death occurs, the taxable year for the deceased is still the normal tax year. Medical deductions can be taken on expenses incurred within one year of the death on either the dead person’s final return or on the estate taxes’ return–not both.

 

 

Can a surviving spouse still file a joint return for the year the death occurred in?

Yes, you may file a joint return if you are newly widowed. You may even be able to file jointly up to 2 years after the death of a spouse if you meet certain requirements. As long as you were entitled to file a joint return the year your spouse died, your children qualify as dependents and your home is their primary residence, you have not remarried and you support your household by providing over half the cost of maintenance, you may file a joint return for two years following the death of a spouse.

 

Does everyone need to file a tax return?

Almost everyone needs to file an income tax return. There are exceptions made for people who earn relatively small incomes. For single people who cannot be claimed as dependents, you must file a tax return if you make more than $7050. For married couples filing jointly, the minimum income for filing is $12,700.

Do college students need to file income tax returns?

Whether or not an individual student has to file an income tax return depends on whether the student is claimed as a dependent on parent’s tax returns and whether the student earns income. You do not have to file if you are a student and your parents claim you on their tax returns and you made less than $4,300 in earned income or your unearned income combined with your earned income was less than $700.

What tax forms inform me of my income and withheld taxes for the year?

IRS Form W-2, Wage and Tax Statement, from your employer tells you what wages and other forms of compensation you received for the year, as well as how much money was withheld for tax purposes. If you have more than one employer, each is responsible for furnishing you with a W-2 by the end of January. One copy of your W-2 should be included with your federal return, one with your state return and one should be kept for your records.

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