Keeping good tax records
Justin Dagna | July 20, 2008 9:50 pmThis tax tip comes from the IRS and provides an excellent summary of the types of records every taxpayer should keep. Business owners, in particular, need to understand the value of their records. That shoebox full of receipts probably has $10,000 in tax savings inside.
From the IRS Tax Tips 2008-05: Keeping Good Tax Records
Fortunately, you don’t have to keep all tax records around forever. Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.
If you are an employer, you must keep all your employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later.
If you are in business, there is no particular method of bookkeeping you must use. However, you must clearly and accurately show your gross income and expenses. The records should substantiate both your income and expenses.
Publication 552, Recordkeeping for Individuals, provides more detailed information on individual record keeping requirements.
Publication 583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses, provide additional information on required documentation for taxpayers with business expenses.
These publications can be downloaded from IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).
One additional tip: consider digitizing your records. I have met several clients who had their receipts destroyed by flood, fire and loss while moving across country. The IRS will accept scanned images of receipts provided that they are stored in a non-editable format. A 200 dpi grayscale GIF or JPG image stored on CD-R or DVD-R is acceptable for this purpose. You can easily fit an entire decade’s worth of records on a single DVD-R. Make three copies: keep one at home, one at the office, and one in a safe deposit box at the bank.
Categories: Tax News and Tips
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