Good record keeping needn’t be a full-time job. With a little organization in January of every year and attentive follow-through for the duration of the year, you should be able to gather the documents you need to prepare your tax filings.
Basically, you should keep all documents detailing your income and expenses, whether they be personal or business-related. A basic filing system should include entries for the following items:
Income: File all documents relating to wages, interest and dividends. If you have business interests separate from your employment, you should keep independent records of income and expenses related to these investments.
Medical Expenses: Keep check stubs or bills for all your medical and dental charges, including prescriptions and travel expenses related to medical care. Although you may not expect to amass sufficient charges to qualify for the medical deduction, you never know when disaster might strike and you will want these records.
Charitable Contributions: Keep track of all your donations whether your contributions are in the form of cash, checks or property. Check stubs, property appraisal forms, acknowledgements and receipts are among the most common records you’ll need to keep. Enter cash contributions in a log or diary. Be sure to note the name and location of the charity, along with the amount and date of the contribution.
Child Care: Keep check stubs, statements or a regular log of your payments.
Alimony: Whether you pay it or receive it, keep track of it. Check stubs or simple notations in a log are sufficient. The same applies to child support payments.
Automobile: To deduct use of your car as an employee business expense, you should keep a mileage log or diary showing the date and distance traveled for every business trip you make. Keep credit card slips or check stubs for gas, oil, auto insurance, lease payments, parking tolls, repair bills, license fees, car washes, parking tolls and similar expenses.
Home Office: Keep receipts for mortgage interest, taxes, insurance, utilities, office furniture and equipment. Record the total area of your home and the portion used as your office.
Asset Purchases and Sales: If you buy stock, real estate, bonds or other capital assets, record your purchase price and any applicable sales commission. This becomes your tax basis in this asset and is used to calculate any gain or loss once you sell the asset.