What are tax records?
Tax records include any records relevant to your taxes, including any prior tax returns, receipts, canceled checks, health insurance documentation, and other documents that support an item of income, a deduction, or a credit appearing on your tax return.
Why should I focus on record keeping?
It is important to keep all tax records for at least three years in the unlikely event that you are audited by the IRS. It is not enough to just claim certain credits and deductions, you need to provide documentation as proof. Without valid proof, the IRS may revoke certain deductions or credits, causing you to end up owing on your tax return. If the IRS also finds negligence or improper record keeping, they may impose fines and penalties for failing to maintain proper records. In addition, improper record keeping can result in denied deductions and credits.
What tax records should I keep?
You need records to properly prepare your tax return and get the credits and deductions you deserve. You should keep your prior tax returns, including your W-2s, receipts, canceled checks, mileage logs, expenses tracking, employer reimbursement statements, bank statements, photos and any other document that relates to a potential credit or deduction on your taxes. A good rule of thumb is to include at least two verifiable forms of proof from separate sources for each type of deduction or credit you’re looking to claim (for example a mileage log and gas/mechanic receipts when claiming mileage).
What are the best practices when it comes to record keeping?
There are lots of ways to keep documentation organized and secure:
- Recognize risky behavior – Watch out for online scams. Phishing emails and clickbait might appear to come from family members, your bank or credit card company, or the IRS itself. In addition, be mindful of unusual behavior consisting of mailings or phone calls that claim to be from the IRS, traditionally the IRS will never call an individual, and if you’re in doubt about any mail received, you can always call the IRS to confirm a letter, call, or email authenticity.
- Use a password – Password protect everything possible. A strong password can help you avoid cyberattacks.
- Don’t use the same password for multiple applications or files.
- Protect yourself digitally – Install and use a firewall, antivirus programs, software security, and methods of encryption.
- Mask or remove your, and family members, Social Security number from all documents
- Protect hard documentation – Whether in a safe or a shoebox, hard documentation should be consolidated and kept safe in one secure location. Consider scanning all documentation and keeping it on a secure hard drive or in a secure cloud-based storage.
- Don’t follow a link, click on an email link, or call back the phone number listed in a suspicious email.
What are the benefits of record keeping?
Good record keeping has a slew of benefits. Primarily, it means an added layer of protection from would-be identity thieves and cyber criminals. Additionally, knowing where your important information is stored and how it’s protected can save you a ton of time when you do your taxes.
How long should I keep tax records?
The general rule is to keep all tax records for at least three years because of the IRS statute of limitations. It is important to keep your records for three years because, according to the statute, if you do not file a claim for a refund that you are entitled to, you have three years from the date you filed the original return or two years from the date you paid the tax, to file the claim. In addition, the IRS normally has three years from the filing date or due date of the return (whichever is later) to assess an additional tax if your income was not accurately reported.
Is anybody responsible for keeping my information safe?
Tax preparers are legally required to keep any tax-related data safe; failure to do so can mean fines and criminal charges. But at the end of the day, each taxpayer is ultimately responsible for keeping their information safe.
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