What Records to Keep for Tax Time

Keep Good Records Now to Reduce Tax-Time Stress

You may not be thinking about your tax return right now, but summer is a great time to start planning for next year. Organized records not only make preparing your return easier, but may also remind you of relevant transactions, help you prepare a response if you receive an IRS notice, or substantiate items on your return if you are selected for an audit.

Here are a few things the IRS wants you to know about recordkeeping.

1. In most cases, the IRS does not require you to keep records in any special manner. Generally, you should keep any and all documents that may have an impact on your federal tax return. It’s a good idea to have a designated place for tax documents and receipts.

2. Individual taxpayers should usually keep the following records supporting items on their tax returns for at least three years:

• Bills
• Credit card and other receipts
• Invoices
• Mileage logs
• Canceled, imaged or substitute checks or any other proof of payment
• Any other records to support deductions or credits you claim on your return

You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include:

• A home purchase or improvement
• Stocks and other investments
• Individual Retirement Arrangement transactions
• Rental property records

3. If you are a small business owner, you must keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Examples of important documents business owners should keep Include:

• Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC
• Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices
• Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
• Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks

For more information about recordkeeping, check out IRS Publication 552, Recordkeeping for Individuals, Publication 583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses. These publications are available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

• Publications 552, Recordkeeping for Individuals (PDF)
• Publications 583, Starting a Business and Keeping Records (PDF)
• Publication 463, Travel, Entertainment, Gift, and Car Expenses (PDF)

Existing Home Sales overstated by NAR by 20%

The National Association of Realtors has produced a complex formula to decipher existing home sales. Of course the NAR would like to have consumers believe that the housing market is reviving after the financial crisis. NAR uses information from their MLS listing services to get their sales figures.
NAR reported 4.9 million existing home sales in 2010, down from 5.2 in 2009. CoreLogic reports only 3.3 million in 2010 and 3.7 million in 2009. NAR could be overstating home sales by more than 20% nationwide.
This conflicting information from CoreLogic, a company that measures sales by tracking property records through local courthouses. And CoreLogic doesn't have direct ties to the real estate market.
It's always very important to research where information is coming from, and who has any interest in what the financial statements portray.

Home Mortgage Rates held Stable

By AMY HOAK @wsj
Home-mortgage rates held stable this week, due to news that the economy improved and inflation remained in check at the end of last year, Freddie Mac's chief economist said on Thursday.

Rates on the 30-year fixed-rate mortgage averaged 4.81% for the week ended Feb. 3, up just slightly from 4.80% last week, according to Freddie Mac's weekly survey of conforming mortgage rates. The mortgage averaged 5.01% a year ago.

Fifteen-year fixed-rate mortgages averaged 4.08%, down slightly from 4.09% last week. The mortgage averaged 4.40% a year ago. Meanwhile, five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 3.69% this week, down slightly from 3.70% and the year-ago 4.27%. And one-year Treasury-indexed ARMs averaged 3.26%, unchanged from last week. The ARM averaged 4.22% a year ago.

To obtain the rates, the fixed-rate mortgages required payment of an average 0.8 point, the five-year ARM required an average 0.7 point and the one-year ARM required an average 0.6 point. A point is 1% of the mortgage amount, charged as prepaid interest.

In the fourth quarter, the economy grew at a 3.2% annualized rate, compared with 2.6% in the third quarter, and was led by a 4.4% gain in consumer spending. In addition, the core price index for consumer expenditures rose by an annualized rate of 0.4%, which was the smallest increase ever since records began in 1959, said Frank Nothaft, vice president and chief economist of Freddie Mac, in a news release. Housing was the most affordable on record in the fourth quarter of 2010, according to National Association of Realtors figures dating back to 1971, Mr. Nothaft added.

Summer tan anyone?

Summer Oh Summer. It's that special season when everyone looks forward to getting to the beach, the pool and maybe getting a tan. Well, if you get a tan via the salon you can look forward to an additional 10% excise tax on that summer glow..... Call it the vanity tax. It goes into effect July 1, 2010.

IRS period of limitations for record keeping

This is taken from publication 552 off the IRS.gov website if you want to read the entire 10 pages of information. This covers basic record keeping and what documents to keep. In a nutshell for tax purposes here are the following period of limitations:

1. If you owe additional taxes and 2,3 & 4 do not apply to you.
Keep your records for 3 years.
It's understandable for this to happen, you owe more than you originally thought.

2. If you do not report income that you should, and it's more than 25% of the gross income shown on your return-
Keep your records for 6 years.
This should not be an issue, since you are reporting all your income, right?

3. If you file a fraudulent return
NO limit.


4. If you don' file a return
NO Limit
If you don't think you made enough money to file, file anyway. Use the 1040 EZ, and you will find out that you don't owe any money. You may even get money back with all the special credits out there.

5. If you file a claim for credit or refund after you filed your return
The later of 3 years or 2 years after tax was paid.

6. If you file a claim for a loss from worthless securities
Keep your records for 7 years.

Financial Spring Cleaning

Should It stay or should It go?

First of all, make sure that any paperwork personal information such as bank account numbers, social security numbers, or other personal identification is shredded before you recyle it.

Monthly Clean Up:
1. ATM, bank deposit slips and credit card receipts after you checked them against the monthly statements.
2. Sales receipts for small purchases, that are not under a warranty.

Annual Clean Up:
1. Monthly bank and credit card statements if you don't itemize deductions.
2. Monthly & Quarterly brokerage and Mutual Fund Statements.
3. Monthly mortgage statements, if you receive a year end statement the totals the amount of interest and property taxes you've paid throughout the year.
4. Phone & utility bills. If you have a home office keep these receipts for business expense records.
5. Paycheck stubs after reconciled with annual W-2 or 1099.

Keep for 7 years:

1. W-2 and 1099 forms

2. Year-end statements from credit card companies.

3. Phone & Utility bills if used for business expense itemizations.

4. Cancelled checks and receipts or statements for:
A. Annual mortgage interest
B. Property Taxes
C. Deductible Business Expenses
D. Child-care bills.
E. Out-0f-pocket Medical costs.
F. All other tax deductible expense.

Keep Indefinitely:

1. Annual Tax Returns

2. Year end summaries from financial services companies.

3. Confirmation slips listing the purchase price of any investments you own.

4. Home improvement records

5. Receipts for major purchases.