Proper documentation is an essential part of preparing your tax returns. For this reason, most providers advise against throwing out or shredding papers until you’re sure you no longer need them. When keeping your records, practice the following methods to ensure your tax services professional has everything they need come filing season.
What Documents Should You Keep?
When it comes to choosing which documents should stay, pick ones that identify your sources of income and records of investments, including stock transactions, bonds, mutual funds, IRAs, and retirement accounts. If you have income-generating real estate properties or recently earned from selling a property, keep those related papers as well.
You also have to keep track of your deductible expenses. Mortgage interest, child care expenses, real estate taxes, alimony, and other costs can reduce the amount of taxes you owe, so ensure you have proof of payment through receipts, sales slips, invoices, canceled checks, and written documentation. For expenses withheld from your salary, keep the pertinent payment stubs, as you may have incurred enough to claim credits after return filing.
How Long Should You Hold Them?
Most tax services providers will tell you to keep records for at least three years after filing the income tax return. The IRS has also set guidelines, advising you to keep paperwork for longer in some situations.
It's best to hold onto your hard copies W-2 and 1099 forms permanently, as these may come in handy when you need evidence for your Social Security benefits or your heirs in the future. Other documents have an indefinite shelf life as well, particularly those related to owned homes, stock investments, and retirement savings plans. The same applies if you have a business.
This recordkeeping will help if the IRS conducts a random audit. If you don’t have the necessary documents to back up your filed return, it can result in costly repercussions. In fact, you may have to pay additional taxes and penalties for unsupported deductions.
Keeping your tax records in order eases the stress of filing and audit seasons. To take even more pressure off, work with a professional from Tostrud & Temp S C. As one of the most trusted accounting firms in La Crosse County, WI, they’ve provided quality bookkeeping, financial accounting, and tax services for over 35 years. Call (608) 784-8060 to set up a consultation today, or visit their website to learn more about how they can help.