Getting Your Records Together
They should be filed neatly in your filing cabinet under “Taxes” but they’re not. They’re in your check file, your investment file, your loan files. Some are in a shoebox. You’re like most people, and filing taxes is a once-a-year thing.
Getting this stuff organized is the worst part of the job. And it’s not something a tax preparer can help you with. You can ask your spouse (but watch out) or a very good friend. Or you can bite the bullet and do it yourself.
Following is a little chart showing you what records you might need. (Also, make sure you’re aware of “Income you don’t have to report.”) Where canceled checks are called for, bank statements may be used instead if they show the check cleared or that an electronic transfer was made and you can show who was the recipient. Where receipts are required, credit card receipts are acceptable. Some credit cards organize this for you in the statements they send you.
Income records
Form W-2. Every employer you had during should have furnished you with a Form W-2, which contains important information about your earnings for the year and the amount withheld for taxes. This is the basic income document if you are an employee.
Form 1099. If you are on your own, you may receive a Form 1099 from businesses that hired you during the year -- or you may not. You are required to report this income either way. It’s good to keep a running summary of your income during the year, and copies of invoices and records of bank deposits should all agree. These are things the IRS will look for if you are audited. This is the time to get them all together.
Savings and investments
Form 1099. Your bank, your mutual funds, and any other institution that pays you interest or dividends will give you a Form 1099 to report the amount you earned for the year.
Transaction records. You should have your own records of purchases and sales of investment property. This is particularly true if you buy and sell art or collectibles.
If you own a home
Form 1098. If you have a mortgage, your lender will give you a Form 1098 to let you know how much interest you paid.
Records of real estate taxes. You’ll need your real estate tax bills and some evidence that you paid them. If you paid them yourself, you need your canceled checks. If your mortgage lender paid them, you will need the lender’s statement.
Charitable contributions
Receipts from the charity. Any qualified charity will give you a signed receipt stating the date and the amount of your contribution or its value if you contributed property rather than money. This is required for contributions of $250 or more, but it is a good idea to get receipts for smaller gifts.
Paystub for payroll deductions. If you contribute to a charity through payroll deduction, your pay stubs are the records you will need.
Appraisal for large contributions of property. If your noncash contribution exceeded $5,000, you need an appraisal of the property.
Medical expensesBills, canceled checks or receipts. You have to be able to show the charge for the medical services, the amount covered by insurance, and the fact that you paid your part.
Health insurance bills and canceled checks, receipts or pay stubs. If you pay all or part of your health insurance premiums, you will need these.
Business expenses
Bills, canceled checks or receipts. If you own your own business, consider having an accountant set up a system for you. In any case, you will need these items to prove your expenses.
Record of business purpose. Be sure that your records of meals and entertainment contain some indication of who ate the meals, who was entertained and the business purpose.
Car expenses
Records of mileage and business purpose. If you use your car for both business and personal purposes, you must be able to show how many miles were driven for each. A record book is a good idea, but if you have a routine, you can use that to compute your deduction.
Bills, statement of loan interest, and canceled checks or receipts. You’ll need these to deduct the business portion of car loan interest, insurance, repairs, gas, oil, etc. You can skip this, if you are satisfied to deduct 32.5 cents for every business mile driven, but your actual expenses might work out to a larger deduction.
Real estate income
Leases and records of bank deposits. The first thing you will have to show is the amount of income you received from the property.
Form 1098 (for mortgage interest), insurance bills, tax bills, bills and receipts for other expenses. Some of this is like owning a home, but you can deduct (potentially) all of your expenses. Just like a business, it might be worthwhile to hire an accountant to set up a good system for keeping track of all the expenses and improvements to your property.
Child care expenses
Canceled checks and statements (if any). If you need child care in order to go to work, you may qualify for a tax credit. If so, you will need to prove how much you paid.
Household employees
Canceled checks. If you paid more than $1,300 (in 2001) to an individual who worked in your home cleaning, taking care of the kids or other work, you have to pay FICA (Social Security tax) for them. Canceled checks are the records you will need. (This doesn’t apply if you went through an agency that takes care of the employment taxes for the employee.)
