Frequently Asked Questions - Records Keeping
  • How can I verify expenses for claims I make on my tax returns ?
  • What kind of records do I need to keep in order to claim a credit for childcare or dependent care expenses ?
  • What sorts of records are necessary to keep relating to home improvements ?
  • What kind of business expenses records should I keep ?
  • What records do I need to keep regarding business use of my automobile ?
  • Gathering Your Health Coverage Documentation
  • How long do I need to keep my tax records for ?
  • How long do I need to keep my cancelled checks for ?



  • 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.

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    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.


    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.

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    What kind of business expenses records should I keep ?

    Keep all your records for any type expenses incurred in connection with your business.
    These include, but are not limited to:

    • Advertising
    • Bad debts
    • Comissions and fees
    • Business Insurance
    • Publications and subscriptions
    • Uniforms and cleaning (Note: This clothing must be UNSUITABLE to wear for personal purposes. For example, a new suit you wear at the office is not deductible, because you could appropriately use it for personal purposes.)
    • Small tools and work supplies (major purchases must be capitalized and depreciated)
    • Business telephone - You can deduct only separately-incurred business expenses for additional lines or services, long distance calls, etc. You cannot deduct any portion of the basic charge of the first residential telephone line in your home, regardless of the percentage of business use.
    • Malpractice insurance
    • Professional license renewals
    • Business gifts (but no more than $25 per person each year)
    • Auto (special rules apply)
    • Education
    • Travel
    • Meals & Entertainment (subject to limitations)
    • Computers and other peripheral equipment
    • Business use of your home (special rules apply)
    • Any other expenses unique to your business.

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    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, you will still need to keep these adequate records.

    Sample Automobile Log (for standard mileage deduction):

    Date

    Beginning Mileage

    Ending Mileage

    Total

    Purpose of Trip

    Destination

    01/03/04 

    8234

    8291

    57

    Craft Fair

    Virginia

    01/05/04

    8302

    8333

    31

    See pot. client (name)

    Local

    01/07/04

    8345

    8385

    40

    Product delivery

    DC

    For more details how to keep actual or standard car expenses records see IRS Publication 463.


    Gathering Your Health Coverage Documentation

    The health care law brought some changes starting on 2014. This year taxpayers again will be asked questions related to health care coverage.

    Most taxpayers simply need to check a box indicating they had qualifying health care coverage for the entire year. Some taxpayers will have to file a new form to claim an exemption from the requirement to have health care coverage. Taxpayers who do not have qualifying health care coverage and who do not qualify for an exemption will need to make an individual shared responsibility payment when they file their tax returns. Some taxpayers who enrolled in coverage through the Marketplace may qualify for a premium tax credit and must file a tax return to claim the credit and to reconcile any advance payments made on their behalf in 2015.

    The IRS does not require taxpayers to submit documentation of health coverage with their tax returns. However, gathering documentation in advance will help return preparation at tax time. Click here for details.


    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.


    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 3 years. 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.

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