FAQs on Record-Keeping
Q.How can I verify expenses for claims I make on my tax returns?
- The most important thing for you to do is to always keep good records. Not only will good record keeping aid in protecting you should you ever be the recipient of an audit, it can also help in saving you money on your taxes. Otherwise forgotten deductions will turn up when perusing your records. In keeping good records, you should always document who you paid, when you paid, and the nature of your expense. IRS Publication 526, Record Keeping and How to Report, may assist you in this matter.
Q.What kind of records do I need to keep in order to claim a credit for childcare or dependent care expenses?
- All documentation relating to amounts paid to a person or center for caring for your child or dependent while you work should be kept. If you have a child care worker who lives with you, keep records on expenses related to meals and lodging expenses.
Q.What sorts of records are necessary to keep relating to home improvements?
- If renovations are made to your home hat increase the value of that home, you may eventually be able to use these expenses towards tax savings. Although you cannot actually deduct these expenses on your tax return, you may add them to the original price of your home, which will help you, when you sell it. This will reduce the reported gain and the amount of capital gains tax you owe if you sell the house at a profit that exceed the capital gains exclusion, which is $250,000 for single filers and $500,000 for joint filers. Routine repair costs, such as painting, do not count. However, putting on an addition, new roof or installing a new sink does. IRS Publication 530, Tax Information for First Time Homeowners, can provide details about home-related tax deductions.
Q.What records do I need to keep regarding business use of my automobile?
- Record the date, time, mileage, person you visited and the reason for the visit when driving your car for business purposes. Even if you decide to take the Internal Revenue Services flat-rate mileage allowance of 32.5 cents per mile, you will still need to keep these adequate records.
Q.How long do I need to keep my cancelled checks for?
- Canceled checks are one of the most important aspects of record keeping and you should really try to keep all of them. At a minimum, keep them for at least 6 months. Ones that the IRS may be interested in you should keep for at least 7 years. When in doubt as to the importance of a canceled check, keep it. You may be glad you did.
Q.How long do I need to keep my tax records for?
- At a bare minimum, you should always keep your tax records for three years. However, since in cases involving unreported income, the IRS has the right to dig back 6 years, you may want to keep your tax records as long. The type of record can also indicate how long it should be kept. For example, records pertaining to the purchase of a home or it's improvements must be held until you sell that home, and records of nondeductible contributions and distributions of an IRA must be kept until all funds have been withdrawn.