Keeping good records is the key to maximizing tax-saving opportunities and minimizing losses when filing your tax returns or for Internal Revenue Service (IRS) audits.
It is the responsibility of the taxpayer to keep up with his own expenditures and receipts during the tax year.
Good record keeping and organization is essential on all spending, whether for home payments, lease payments, vehicle mileage, office overhead, operating expenses, and other business expenditures, helps make it easier on you, or your professional tax consultant, when preparing your tax returns.
Records provide the tax consultant with an instant look at what your expenses are, what can be used as a write off, and good record keeping reduces the possibility of filing errors.
The best way to keep records is to buy a small file cabinet, a file folder, or a large envelope that you can access any time there is a need.
1.Keep a file for all your bills, starting each one at the beginning of the year (January 1).
2.If you are in business, always keep a set of account books available.
3.Immediate write down all items that may be used as deductions.
4.Write in your checkbook all bills that you pay with checks from your personal account or your business account.
5.Keep all bank statements and cancelled checks.
6.Keep records of all charity donations.
7.Keep a daily diary or planner noting all your deductible expenditures.
8.Keep all records relating to real estate purchases and sales including escrow documents, loan documents, title insurance documents, and all other pertinant papers. These records should be kept separately and stored in a secure place.
You should always keep records for at least 3 years but it may be a good idea to keep them for 6 years. Most IRS audits take place within the third year of filing but it has been documented that the IRS may go back to as many as 6 years on an audit.