Sep 01, 2019
Good records can make or break your opportunity to lower your tax bill. Make sure you are not eliminating potential deductions at tax time by following these recordkeeping tips:
- Track your expenses by tax categories. Knowing how to classify your expenses and income is half the battle. Look at last year’s tax return and tax organizer for clues. Focus on itemized deductions and tax credit categories. If you are a small business owner, look at Schedule C or your business tax return line items.
- Be a diligent tracker. Make recordkeeping a year-round task, not a year-end burden. For instance, update business mileage records daily. File receipts before they are lost. Record tax transactions as they occur throughout the year. And reconcile your bank statements. Though tedious, it is the only way to know for sure if you have included everything in your records.
- Hold on to prior-year tax records. Because an IRS audit is always a possibility, keep copies of tax returns and supporting records for as long as they are needed. This timeframe is typically from 3 to 7 years.
- Watch for important receipts. You probably already know to collect these documents: W-2s, 1099s and annual mortgage statements. But did you know that charitable donations of $250 or more must be accompanied by a receipt from the charity to be deductible? Remember to keep all pay stubs and brokerage statements. If in doubt, save the receipt. It is always easier to toss something out than to scrounge around looking for a document.
- Maintain a separate bank account for all business activities. This will minimize confusion when filing your tax return and reduce the chance of having an expense disallowed by an auditor. The same is true for credit cards. Always keep business and personal expenses separated.
- Be aware of special tax breaks. Some records become more important as tax rules change. For example, since alimony is no longer deductible for agreements finalized in 2019 or beyond, it is now important to keep a copy of your pre-2019 agreement with your tax return if you are reporting alimony income or deductions.
- Consider how life events change your tax situation. New happenings in your life, like a job change, new child or change in marital status, might affect how you track your income and expenses.
Fall is a great time for a tax planning meeting to review your specific situation. Reach out to your accountant at 319-364-2945 in Cedar Rapids, or 319-339-4884 in Iowa City to set up your appointment.