Yet another tax return has been sent off to the government, meaning you have another 12 months before you need to do this again! But before you close that tax file, there is still some work to do. If the IRS or state revenue department selects your return for review, you will need to be prepared. Here is what you need to know:
The IRS says you should retain documentation for as long as they are needed to support your tax return. Normally tax records should be kept for three years from the later of the tax filing due date, the date you filed your taxes, or the date you paid your tax in full. But be careful. . .others may want it for a longer period of time!
Some documents should be saved indefinitely. This includes:
- Your tax return;
- Records related to a home purchase or sale;
- Stock transactions.
The IRS does not require any specific record keeping system. You just need to keep all documents that can support information on your tax return. Here are common records worth retaining:
- Canceled checks;
- Other proof of payment for claimed deductions;
- Bank and credit card statements;
- Mileage logs;
- Receipts with time; place; and purpose noted.
Be mindful of other record retention requirements
- State record retention requirements are often 6 months to 1 year longer than Federal requirements;
- Social Security records often need to be proofed to ensure they match your pay stubs;
- Insurance, banking, and estate management may require other records.
Federal retention requirements become 6 years if your return understates your tax obligation by more than 25%, and the record retention period is indefinite if fraud is involved.
Keep a good system
To ensure that the build-up of paperwork does not overwhelm your home or office, at the end of the tax year, rotate your records. In doing so, decide how many years of records must be retained. Then count back from your current tax return filing year and shred unneeded, older documentation. Create new empty files for the current tax year to save receipts for the coming year. Consider scanning records to keep digital copies. A final word of caution: If you are unsure whether to retain or shred, keep it unless you know the document can be replaced.
Dealing with small business taxes and other financial decisions doesn’t have to be stressful. The tax and accounting professionals at Goldin Group can help you organize and prepare all the paperwork you need, save money on filing, reduce your tax liability, and minimize your chances of receiving that dreaded IRS letter. If you are a small business that is looking to outsource your accounting or if you need help managing any aspect of your business’s or nonprofit’s finances, we want to hear from you. Call us at (301) 913-0008 or email firstname.lastname@example.org to make an appointment.