The holidays are a busy time of year, but the IRS suggests getting tax-related documents in order now to save time when the filing season arrives.
What to keep (individuals)
In most cases, individuals should keep records that support items on their tax return for at least three years after that tax return has been filed. Examples include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks or other proof of payment and any other records to support deductions or credits claimed.
“You should typically keep records relating to property at least three years after you’ve sold or otherwise disposed of the property,” said IRS spokesman Michael Devine. “Examples include a home purchase or improvement, stocks and other investments, IRA transactions and rental property records.”
What to keep (small business owners)
The IRS advises small business owners to keep all employment tax records for at least four years after the tax becomes due or is paid, whichever is later. The should also keep records documenting gross receipts, proof of purchases, expenses and assets. Examples include cash register tapes, bank deposit slips, receipt books, purchase and sales invoices, credit card charges and sales slips, Forms 1099-MISC, canceled checks, account statements, petty cash slips and real estate closing statements.
How to keep them
“The IRS generally does not require records be kept in any special manner,” said Devine, “but only to keep them in a manner that allows you and the IRS to determine your correct tax. Having a designated place for tax documents and receipts is a good idea because it will make preparing your return easier and may remind you of relevant transactions.”
Good recordkeeping will also help you prepare a response if you receive an IRS notice or need to substantiate items on your return if you are selected for an audit.
Electronic records can include databases, saved files, e-mails, instant messages, faxes and voice messages.
Information on recordkeeping in IRS Publication 17, Your Federal Income Tax, Publication 552 Kinds of Records To Keep, and Publication 583, Starting a Business and Keeping Records. Publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).