What records do I keep to do my taxes
Tax Records for Tax Preparation
Keep detailed records of your income, expenses, and other information you report on your tax return. A good set of records can help you save money when you do your taxes and will be your trusty ally in case you are audited. There are several types of records that you should keep. Most experts believe it's wise to keep most types of records for at least seven years, and some you should keep indefinitely.
What TYPE of records do I need to keep?
Tax Records You Need to Keep
Keep records of all your current year income and deductible expenses. These are the records that an auditor will ask for if the IRS selects you for an audit.
Here's a list of the kinds of tax records and receipts to keep that relate to your current year income and deductions:
- Income (wages, interest/dividends, etc.)
- Exemptions (cost of support)
- Medical expenses
- Taxes
- Interest
- Charitable contributions
- Child care
- Business expenses
- Professional and union dues
- Uniforms and job supplies
- Education, if it is deductible for income taxes
- Automobile, if you use your automobile for deductible activities, such as business or charity
- Travel, if you travel for business and are able to deduct the costs on your tax return
While you're storing your current year's income and expense records, be sure to keep your bank account and loan records too, even though you don't report them on your tax return. If the IRS believes you've underreported your taxable income because your lifestyle appears to be more comfortable than your taxable income would allow, having these loan and bank records may be just the thing to save you.
How long should I keep these records?
Duration of Records Kept
Keep the records of your current year's income and expenses for as long as you may be called upon to prove the income or deduction if you're audited.
For federal tax purposes, this is generally three years from the date you file your return (or the date it's due, if that's later), or two years from the date you actually pay the tax that's due, if the date you pay the tax is later than the due date. IRS requirements for record keeping are as follows:
You owe additional tax and situations (2), (3), and (4), below, do not apply to you; keep records for 3 years.
You do not report income that you should report, and it is more than 25% of the gross income shown on your return; keep records for 6 years.
You file a fraudulent return; keep records indefinitely.
You do not file a return; keep records indefinitely.
You file a claim for credit or refund* after you file your return; keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
You file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.
Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
Should I keep my old tax returns?
Reasons to keep old Tax Returns
Yes, keep your old tax returns.
One of the benefits of keeping your tax returns from year to year is that you can look at last year's return while preparing this year's. It's a handy reference, and reminds you of deductions you may have forgotten.
Another reason to keep your old tax returns is that there may be information in an old return that you need later.
One example of information you may need years later is the tax basis of your home. If you sold your home some years ago and replaced it with the one you live in now, you filed a Form 2119 with your old return. On Form 2119, you figured the tax basis of your current home. When you sell your current home, the starting point to find out what your gain (or loss) is comes from the Form 2119 for the old house.
Audits and your old tax returns
Here's a reason to keep your old returns that may surprise you. If the IRS calls you in for an audit, the examiner will more than likely ask you to bring your tax returns for the last few years. You'd think the IRS would have them handy, but that's not the way it works. Your old returns are more than likely in a computer, in a storage area, or on microfilm somewhere. Usually what your IRS auditor has is just a report detailing the reason the computer picked your return for the audit. So having your old returns allows you to easily comply with your auditor's request.
How long should I keep my old tax returns?
You may want to keep your old returns forever, especially if they contain information such as the tax basis of your house. Probably, though, keeping them for the previous three or four years is sufficient.
If you throw out an old return that you find you need, you can get a copy of your most recent returns (usually the last six years) from the IRS. Ask the IRS to send you Form 4506, Request for Copy or Transcript of Tax Form. When you complete the form, send it, with the required small fee, to the IRS Service Center where you filed your return.
Types of Self Employment Deductions
Self Employment Deductions
You may be able to take an immediate expense deduction of up to $139,000 for 2012, for equipment purchased for use in your business, instead of writing it off over many years. Additionally, self-employed individuals can deduct 100% of their health insurance premiums. You may also be able to establish a Keogh, SEP or SIMPLE plan and deduct your contributions (investments).
Filing Individually VS. Joint Filing
Joint Filing or Individual Filing
You sometimes may benefit from filing separately instead of jointly. Consider filing separately if you meet the following criteria:
One spouse has large medical expenses, miscellaneous itemized deductions, or casualty losses.
The spouses' incomes are about equal.
Separate filing may benefit such couples because the adjusted gross income "floors" for taking the listed deductions will be computed separately.
Can I Deduct Business Travel Expenses?
Business Expenses
A wide range of expenses can be deducted while traveling away from home.
Here are the main ones:
Transportation fares, or actual costs (or a standard per mile rate) of using your own vehicle. Also, transportation costs of getting around in the work area-to and from hotels, restaurants, offices, terminals, etc.
Lodging and meals (subject to the 50% limit on meals)
Phone, fax, laundry, baggage handling
Tips related to the above
How to prove Travel and Entertainment Expenses?
Travel and Extertainment Deductions
If you're an employee who is reimbursed for expenses you'll need to file and expense report for your employer, which is a written accounting of your expense while on travel. If you received a cash advance, you'll also need to return to the employer any amounts in excess of your expenses.
Some per diem arrangements and mileage allowances-called "accountable plans"-take the place of detailed accounting to the employer, if time, place and business purpose are established.
Where expenses aren't fully reimbursed by your employer, or excess reimbursements aren't returned, detailed substantiation to IRS is required and, if you're an employee, your deductions are subject to the 2% floor on miscellaneous itemized deductions.
In addition, your expense records should be "contemporaneous", that is, recorded close to the time expenses are incurred.
Which organizations qualify for a charitable deduction?
Charitable Donation Deductions
The following types of organizations generally qualify for a deduction. Before making a donation, make sure to verify the organizations status. You can do this by asking for evidence in writing or contacting the Internal Revenue Service.
- Churches, synagogues, temples, mosques, and other religious organizations.
- Federal, state and local governments if the proceeds are used for public purposes.
- Nonprofit schools, hospitals and volunteer fire companies.
- Public parks and recreation facilities.
- Salvation Army, United Way, Red Cross, Goodwill, Boy Scouts and Girl Scouts.
- War veterans' groups.