Did you spend hours pulling together your tax records in preparation for filing your 2012 tax return? It doesn’t have to be that way. Avoid the 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 2012 tax return as a guide.
* You’ll 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.
* 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.
* Then stay current with your records as you go through the year. It’s easier to spend a few minutes each month than to have to spend hours reconstructing everything at the end of twelve months.
* 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 chances of maximizing tax breaks. If you have questions about the records you need to keep, give us a call.
David Bradsher, CPA is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.