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2016 Tax Olympics: Keeping Required Tax Records (Day 2)

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2016 Tax Olympics: Keeping Required Tax Records (Day 2)


Today's event will attempt to determine the best ways to handle keeping your tax records. It is not necessary to hold on tax records forever. However, knowing  the rules can save you from many headaches if ever chosen for an tax audit. The IRS can care less about your "word." The IRS only cares about actual official documentation that proves your case. I had a client that opened up a medical office from scratch. The client didn't keep good records at all. Showing before and after pictures of the office helped very little. Showing receipts from retail stores like Bath, Bed and Beyond that could either be challenged as personal or business purposes helped only a little too. In the end, we made an negotiation with the IRS to accept half of the expenses that the doctor couldn't prove. Every deduction on the tax return was 100% legit without a doubt.Try to learn from this experience on how not keeping tax records can possibly hurt you. Here are the best three ways to prevent this situation from happening to you:

BRONZE MEDAL 



Keep credit card receipts and canceled checks that support your tax deductions on your tax return for as long as you keep the return. Write explanations on the statements for each deduction. For example, lets say you brought round trip airline tickets to Orlando, Florida. Orlando is a popular tourist destination however you actual brought the tickets to attend an business conference. Just don't assume that the IRS will believe you that it was a business related deduction. Not only should you keep all canceled checks, you should keep a copy of conference registration form. The registration form will prove that the date of the tickets agree with the conference dates. The IRS can't reject this type of proof. Don't give the IRS find a way to challenge your deductions.


SILVER MEDAL



Good recordkeeping throughout the year saves you time and effort when doing your taxes. You may want to hire an tax accountant or bookkeeper to update your records on a regular basis.  If you hire an bookkeeper then the records you have kept throughout the year will assist your tax return preparer in quickly and accurately completing your return. Bookkeepers can give you suggestions to help you with your records. If you don't want to hire an bookkeeper, look into accounting software like QuickBooks Online. Entering your information into accounting software can help you with keeping track of your income and expenses. This may also force you to keep your receipts in an orderly manner.

GOLD MEDAL



Save your tax returns and supporting documents for at least three years. That's how long the IRS has to audit you. There are, however, exceptions. The IRS has up to six years to audit you if you under-report your income by 25% or more. There is no statute of limitations on audits of fraudulent returns (sorry, to all the con artists out there). Keep W-2s, 1099s, acknowledgments from charities and other supporting documents for as long as you keep your tax returns. Too much taxpayers believe that if they don't hear from the IRS after the first two years then they won't get audited. If you hate paper than you should scan your tax returns and supporting documents on your computer. You may want to even save it on a cloud system because computer can get damaged or lost.

 Stay tuned for tomorrow's Day 3 event: Dealing With Failure to File and and Failure to Pay Penalties

                                           Purchase The World's Funniest Tax Advice Book Ever

Name: Jamaal Solomon







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