It is that time of year again…time to prepare for filing your personal income tax return. The IRS generally requires taxpayers to shoulder most of the recordkeeping responsibilities. Despite the hassle, you can make the process go a lot smoother if your organize your records in a logical fashion.
Don't wait until the last minute (before the filing deadline) to get organized.
Below are a few tips that may help you relieve some of the stress and be better prepare you for your accounting professional:
Keep a list or ledger to record those expenses that may be claimed as itemized deductions. The list may include medical and dental expenses, interest expenses, charitable contributions, miscellaneous expenses, etc. You may want to maintain a separate list for categories with extensive expenses.
Set up a filing system for expenses and income. You might keep infrequent items together in a separate folder. However, travel and entertainment expenses should be handled separately due to the strict requirements. As a general standard, you must document the date, amount of the expense, the business purpose and other details (depending on the nature of the expenditure). You must keep receipts for items of $75 or more.
Review your expenses on a regular basis. It is much easier to utilize tax planning during the year if you know where you stand. For instance, you might total up the expenses recorded in your diary at the end of each quarter. If you wait until the year is over, it may be too late to take action.
Store your records in a safe place. Even the best recordkeeping system will not do you any good if you cannot retrieve the records. Consider storing valuable documents in a fire-resistant strongbox or some other locker. You might keep check registers, credit card statements and the like in a safe deposit box.
Adjust your system over time as needed. No matter what kind of recordkeeping system you adopt, try to remain flexible. A change in circumstances-for example, the purchase of a home-may require changes in your setup.
NOTE: The statute of limitations on IRS adjustments is three years. But the limit is six years for any return that omits 25% or more of an individual's income. To be safe, it is highly recommended that you hold onto your records for at least ten years. Your professional tax return preparer can provide assistance in this area. A professional can also point out tax-saving opportunities available on your 2007 return.
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