Keeping accurate tax records is essential. Here are a few things you can do to ensure your record keeping is of good quality.
Before you rent warehouse space for your tax records, be aware that the Internal Revenue Service recommends hanging on to them for three to seven years, depending on your personal situation. There are some records you might want to keep longer like records on appreciable assets. For the most part, if you file your returns consistently, you can get rid of old tax records that go beyond three years.
Your W-2, W-4, and 1099 forms are valuable tax records. You should store them in a safe place and hang onto them at least three years, maybe a little longer for extra precaution.
As far as keeping receipts goes, it is better to have more than to have less. If you itemize deductions, you want to have your receipts readily available as proof of your deductions. If storing receipts in file folders is a problem, scan them into your computer. Just put them away in a box in case you ever need to get to the originals for some reason.
If you settled a tax debt with the Internal Revenue Service, you may want to hang onto these records for the foreseeable future. You don’t want to face a wage garnishment or tax levy because of some bureaucratic foul-up and not have your records to support that you settled the claim.
Owning a house comes with its very own set of records. You want to keep everything pertaining to your home, mortgage payments, insurances, and PMI. Many of these items represent tax deductions for you, and your home is one of those appreciable assets we mentioned at the start of this article.
Designate a place to keep all of your tax records. You want to have a neat place to store these documents. If you can store them in some sort of fireproof box or set of filing cabinets, this would be best. In any case, keep them somewhere reasonably handy in case you need to refer to them for any sort of verification, or in the event of an Internal Revenue Service audit or investigation.
It is also highly advisable to develop an organized file system for your tax records. The easiest way to do this is to file your returns, W-2s, W-4s, 1099s, receipts, and records by year. In the event of an Internal Revenue Service audit or investigation, they will most likely be referring to the information they want based on specific tax years. Make whatever might come up as easy as possible to deal with by keeping your records highly organized.