Reduce tax time stress with good recordkeeping habits
DALLAS - Whether you are an individual taxpayer or a business owner, you can avoid headaches at tax time by keeping good records during the year. Although the next federal income tax filing season is not far off, it’s never too late to start gathering records and setting up a beneficial system to help stay organized for years to come.
“In most cases, the IRS does not require you to keep records in any special manner, but you should keep any and all documents that may have an impact on your federal tax return,” said Clay Sanford, an IRS spokesman in Dallas. “It’s important to get into this routine, because you may forget expenses when you prepare your tax return unless you record them when they occur.” You should usually keep the records supporting items on your tax returns for at least three years. This includes records to support deductions or credits you claim on your returns, such as invoices, receipts, mileage logs and cancelled checks, or any other proof of payment. Small business owners must keep all employment tax records for at least four years after the tax becomes due or is paid, whichever is later.
Other important documents you should keep include records for gross receipts, such as cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and forms 1099 miscellaneous.
- Proof of purchases -- for instance, cancelled checks, cash register tape receipts, credit card sales slips and invoices.
- Expense documents -- like invoices, cancelled checks, cash register tapes, account statements, credit card sales slips and petty cash slips for small payments.
- Documents to verify your assets – such as purchase and sales invoices, real estate closing statements and cancelled checks.
Also, you should normally keep records relating to your business assets until at least three years after you sell or otherwise dispose of the property. Examples of these assets include building, machinery, equipment, and office furniture or fixtures purchased and used in your business. You need these records to determine the annual depreciation in gain or loss when you sell the assets.
“You need accurate records to monitor the progress of your business,” Sanford added. “Records can show whether your business is improving, which items are selling or what changes you need to make.”
For more information about recordkeeping, check out IRS Publication 552, Recordkeeping for Individuals; Publication 583, Starting a Business and Keeping Records; and Publication 463, Travel, Entertainment, Gift, and Car Expenses. These publications are available at www.irs.gov.