Good Recordkeeping Year-Round Helps You Avoid Tax Time Frustration
January 18, 2023
Wading through piles of papers when it’s time to prepare a tax return can be frustrating if you haven’t managed your records. By knowing what you need to keep and how long to keep it, you can develop a good recordkeeping system year-round and make filing your return easier.
top Tips For good Record Keeping
Identify sources of income. You may receive money or property from a variety of sources. The records can identify the sources of income and help separate business from non-business income and taxable from nontaxable income.
Keep track of expenses. You can use records to identify expenses for which you can claim a deduction. This will help determine whether to itemize deductions at filing. It may also help you and your tax team discover potentially overlooked deductions or credits.
Prepare for tax time. Good records help your tax return to be filed quickly and accurately. Throughout the year, add tax records to your files as you receive them to make preparing tax returns easier.
record Retention
You should develop a system that keeps all your important information together. You can use a software program for electronic recordkeeping. You could also store paper documents in labeled folders. Download our Records Retention Guide to learn about how long to keep various documents.
Tax-related records. This includes wage and earning statements from all employers or payers, 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. You should also keep receipts, canceled checks, and other documents that support income, a deduction, or a credit reported on your tax return.
IRS letters, notices and prior year tax returns. Keep copies of prior year tax returns and notices or letters received from the IRS, including adjustment notices when an action occurs on your account.
Property records. Keep records relating to property you dispose of or sell. You must keep these records to figure the basis for computing gain or loss.
Business income and expenses. Find a bookkeeping method that clearly and accurately reflects your business’s gross income and expenses. If you have employees, you must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.
Health insurance. Keep records of health care insurance coverage for you and any family members. 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 paid.