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The Benefits of Keeping Good Records (how to save yourself time and frustration)

The dreaded tax season is coming up. But it doesn't have to be a huge stress if you think ahead a little at a time.

a pile of papers are stuffed into two binders. get organized!

4 Benefits of Keeping your Records Neat

  • Identify sources of income. You may receive money or property from a variety of sources. By keeping track of your records you can identify the sources of income and help separate business from non-business income and taxable from nontaxable income.

  • Keep track of expenses. You may use records to identify expenses. Identifying expenses is important because those expenses may qualify as tax deductions or credits (thus lowering your tax bill). It will also help determine whether to itemize deductions at filing.

  • Prepare tax returns. Good records will help you file your tax return quickly and accurately. Throughout the year, you should add your tax records to your files as soon as you receive them to make preparing a tax return easier.

  • Support items reported on tax returns. Well-organized records make it easier to prepare a tax return and help provide answers if the return is selected for examination or if you receive an IRS notice. If you are questioned about tax claims or required to go through an audit, you will be much better prepared if you've kept track of your records and have documentation to back up your claim.

In general, you should keep records for three years from the date they filed the tax return. You should develop a system that keeps all your important information together. You can use a software program for electronic recordkeeping and/or you could also store paper documents in labeled folders.

When you work with us we keep paper copies of your records. We also store your documents in Taxdome so that you have a secure online resource to view your documents if needed and upload new tax documents when you receive them.

Helpful Records to Keep

  • Tax-related records. This includes

    • wage and earning statements from all employers or payers including payment apps or cards, such as: Form W-2, 1099-K, 1099-Misc, 1099-NEC

    • other records include interest and dividend statements from banks, certain government payments like unemployment compensation, other income documents and records of virtual currency transactions

    • receipts, canceled checks, and other documents that support income, a deduction, or a credit reported on their tax return.

  • IRS letters, notices and prior year tax returns. You should keep copies of prior year tax returns and notices or letters you receive from the IRS. These include adjustment notices when an action takes place occurs on the your account.

  • Property records. You should also keep records relating to property you dispose of or sell. You must keep these records to figure your basis for computing gain or loss.

  • Business income and expenses. If you are a business owner, you should find a bookkeeping method that clearly and accurately reflects your gross income and expenses. If you have employees then you must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.

  • Health insurance. You should keep records of your own and your family members' health care insurance coverage. If you're claiming the premium tax credit, you'll need information about any advance credit payments received through the Health Insurance Marketplace and the premiums you paid.

Tips/Ideas about Keeping Organized

  • Location. If you are keeping paper copies of your records and documents- Invest in a binder or two. If you have a place to store your documents and a system to keep them then you are much more likely to stay organized. It's easier to put your record in a safe place if you have one set up.

  • Program. If you are keeping records digitally (especially if you are a business owner) then you should look into an online program to help you. If you are paying a bookkeeper or accountant (Like us) then they might provide that program for you or at the very least give you guidance on which one they recommend. It's also helpful to have a bank that allows you to download your statements into an excel spreadsheet. Some banks only allow you to download your statements as a PDF which is not very helpful when you are breaking down income/expenses into financial statements.

  • Consistency. Find what works best for you and stick to it. If you know you have a bad habit(s)- try to take one small step towards being better. Maybe you know you need to keep receipts for your business but they are shoved into your car cupholder. One small step would be to have a folder where you put your receipts instead (it could even be in the glove compartment). The system only works if you use it.

Please reach out if you have any questions. We are happy to help.

This blog post is not a substitute for legal or financial advice and is not liable for any misinformation that may have been provided. This information has been provided by the IRS.


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