Did you spend hours pulling together your tax records in preparation for filing your 2012 tax return? It doesn’t have to be that time consuming. Avoid that problem next year by taking a few simple steps now.
- First, decide what records you need to keep for the current year. Generally speaking, you’ll need records of income items and deductible expenses. Use your 2011 or 2012 tax return as a guide.
- You will also need to keep some items for longer periods. For example, you may need purchase records for your house and other investments years later to calculate your capital gains.
- Set up a filing place for each category. Use folders or plastic pouches for paper records, such as charitable receipts, property tax payments and mortgage reports. You may want to scan paper records and save them to your computer.
- If you manage your banking and finances online, open up a series of folders on your hard drive. Save copies of electronic statements or transaction receipts in the relevant folder. Remember to make regular data backups.
- Keep current with your recordkeeping as you go through the year. It’s much easier to spend a few minutes each month than have to spend hours reconstructing everything at the end of twelve months. Months later, it may be hard to recall what a particular expense was for.
- At the end of each month, highlight income and deduction items in your check register. Use one color for charitable contributions, another for work expenses, and so on. You can do this whether you keep your register on paper or on a computer. Make sure any associated receipts are filed away correctly.
- At year-end, you should know exactly what falls into each category and where the records are.
Remember, the better your recordkeeping, the better your changes of maximizing tax breaks. If you have questions about the records you need to keep, contact your tax professional.