Tax season comes the same time each year, and many taxpayers have not given a second thought to what records they will need to file income taxes. Actually, the list changes very little from year to year, but many taxpayers act as though the need to maintain tax records is some grand revelation.
In previous articles, we have explained the importance of keeping records so that your tax return can be properly prepared and that claimed items can be backed up in the event of an audit. Despite the fact that the IRS Reform Act of 1998 shifted “the burden of proof” of audits to the IRS, the 1998 law does not relieve any taxpayer of the obligation to keep proper records to substantiate deductions and tax basis.
Let’s take this opportunity to mention some of the more common items that will be needed. You should keep records of expenses that can be claimed as itemized deductions. Thus, you should keep records of unreimbursed medical and dental expenses, including receipts showing the dates you paid them and receipts for transportation primarily for, and essential to, medical care; payments of state income tax, including any W-2 forms from employment; canceled checks of payments of estimated state tax and additional state tax paid; previous years’ tax returns; and records and canceled checks showing interest payments on your home mortgage, payments of real estate and personal property taxes.
You also need records of charitable contributions. As a result of the Pension Protection Act of 2006, the rules have been tightened for substantiation of charitable contributions. You must now be able to provide a canceled check or a receipt from the charity showing the amount and date of the contribution no matter what the dollar amount of the contribution. For a contribution of $250 or more, you need a written acknowledgment from the charity containing very specific information, and you generally must get this before you file. Additional records are needed for contributions of property other than cash. If you perform services for a charity, keep records showing your out-of-pocket expenses.
You must keep records of stocks, mutual funds, bonds and other similar investment property. Retain information on how and when any such assets were acquired, including additional shares purchased by reinvesting dividends. For these items and other types of assets, you must keep track of your basis, which is used to measure your tax gain or loss when you sell an asset. Basis is ordinarily your cost but is different for property acquired by gift, inheritance or in a divorce. It is especially important to keep records of the basis in your home, which you may not sell for several years. Records of sales also need to be kept, along with commissions and other selling charges.
For further information about tax planning opportunities, contact the Henssler Financial at 770-429-9166 or experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
