How to cover yourself in the case of an IRS audit
Ever hear the saying, "The time to prepare for church on Sunday is Monday?"
I heard that a lot, probably because I was prone to hitting the snooze button more than once each morning, even as a young child. That propensity for sleeping in often led to me being late in getting around to tasks like choosing my clothes, ironing my clothes, and, well, getting there on time. No matter how many times I cringed at hearing that phrase, I realize now — despite the fact that I continue to hit snooze more often than I should — that this advice can cross over to many important aspects of life.
Tax season, which we've all just survived, is certainly no exception to the rule that being prepared is always a great idea. May is the first month after tax season — or the first month of preparation for next year. Right now is the best time for you to start getting ready for the 2021 tax season. In the same vein, here are five tips from the IRS for great pre-tax record keeping.
Five tips for saving tax hassles
There are many records you have that could help document items on your tax return. You’ll need this documentation if the IRS selects your return for examination.
Here are five tips the IRS provided:
1) Tax records normally should be kept for three years.
2) Some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.
3) In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have impacted your federal tax return.
4) Records you should keep include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment and any other records that would support deductions or credits you claim on your return.
5) For more information on what kinds of records to keep, see https://www.irs.gov/publications/p552/index.html IRS Publication 552, Recordkeeping for Individuals, which is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
My favorite fortune cookie of all time said, "Over-prepare and then go with the flow." Good luck with your 2021 taxes.