Keeping an accurate log of your deductible expenses, income statements, and receipts is a crucial practice for tax purposes. You want to ensure that filing your tax return goes smoothly, whether it is for personal or business reasons.
Good tax record-keeping practices include knowing which records are essential to store and how long you should have them. Consider the following lists and tips for maintaining good tax-keeping behavior.
What Types of Records Should You Keep?
Be sure to keep good records and supporting documents for tax purposes. Here are common accounts you can save to monitor your business:
Assets: Keep records that serve as evidence of your business’s property. These documents may include costs of the asset’s improvements and deductions within a certain period.
Expenses and Purchases: Proof of transactions shows what products or services you have purchased and when you bought them. These documents include account statements, check records, paid invoices, and sales slips.
Inventory Records: Keep documents that track physical items. Aside from helping you identify which items are high-demand and on-hand, these records help determine which items count as business taxes.
Wage and Income Statement: These tax-related records come from employers and payers to determine how much they earned during a particular period. Related documentation includes bank deposit slips, cash register receipts, credit card charge slips, and invoices.
Transport and Travel Expenses: Keep any receipts and credit statements associated with traveling to and from a business destination. Evidentiary records may include anything you purchased to sustain life while you stayed at a business destination (food and lodging).
IRS Letters and Notices: Be sure to keep any tax returns from previous years and anything related to the Internal Revenue Service. These documents include notices or adjustments and Economic Impact Payment.
Health Insurance: All information related to you and your family’s health insurance coverage is important for a premium tax credit. Such information includes proof of paying premiums, whether they are current or advance payments.
How Long Should Records Be Kept?
Experts tend to agree on seven years as an acceptable period for keeping tax records. However, different tax records may require various times you should keep them. How long you keep records will also depend on their purpose.
You may need to keep asset records for as long as you own an asset of any sort. For example, you would keep tax documents associated with a home or office equipment which may last longer than seven years.
Meanwhile, you would not have to keep grocery store receipts in most cases. Some taxpayers may include these records for shorter than seven years, just to take note of how much they spent on groceries. Overall, you can keep any record that you want to reflect in your database.
Good Record-Keeping Makes Filing Your Tax Returns Much Easier
Having accurate financial statements for business and personal purposes keeps your records organized, making it easy to file tax returns. You will have solid proof of how much you spent on items, how much your business earned in the past year, and how much you might owe the government.
Proof of your finances during a certain period can help avoid repercussions associated with inaccurate financial records. For instance, inaccurate business profits may cause you to have a high tax liability. With a high tax liability, you would owe the government more money than you might truly do.
Contact a Tax Professional
Consider getting a tax professional to assist you in filing your tax returns. AKA: CORE Group. These experts know the ins and outs of preparing tax returns, gathering supporting documents, and determining tax-deductible expenses.
At Core Group, we offer professional tax preparation services to help you proceed with a smooth tax filing procedure. Get in touch with our seasoned professionals to discuss your options.