Good tax planning includes good recordkeeping

July 23, 2019

Tax planning should happen all year long, not just when someone is filing their tax return.  An important part of tax planning is recordkeeping. Well-organized records make it easier for a taxpayer to prepare their tax return. It can also help provide answers if a taxpayer’s return is selected for examination or if the taxpayer receives an IRS notice.

This tip is one in a series about tax planning by the IRS. These tips focus on steps taxpayers can take now to help them down the road.

Here are some suggestions to help you keep good records:

  • You should develop a system that keeps all of your important info together. You can use a software program for electronic recordkeeping. You could also store paper documents in labeled folders.
  • Throughout the year, you should add tax records to your files as you receive them. Having records readily at hand make preparing a tax return easier.
  • It may also help you discover potentially overlooked deductions or credits. Taxpayers should notify the IRS if their address changes. They should also notify the Social Security Administration of a legal name change to avoid a delay in processing their tax return.
  • Records that you should keep include receipts, canceled checks, and other documents that support income, a deduction, or a credit on a tax return.
  • You should also keep records relating to property you dispose of or sell. You must keep these records to figure your basis for computing gain or loss.
  • In general, the IRS suggests that taxpayers keep records for three years from the date they filed the return.
  • For business taxpayers, there’s no particular method of bookkeeping you must use. However, you should find a method that clearly and accurately reflects your business gross income and expenses. The records should confirm income and expenses. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.

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