Year-round tax planning is for everyone and an important part of that is recordkeeping. Gathering tax documents throughout the year and having an organized recordkeeping system can help identify sources of income, keep track of expenses, and prepare accurate tax returns.
The records a taxpayer provides can identify the sources of income by helping to separate business from nonbusiness income and taxable from nontaxable income. They can also help determine whether it’s best to itemize deductions at filing while helping to discover potentially overlooked deductions or credits. Throughout the year, taxpayers should add tax records to their files as they receive them to make preparing a tax return easier. Well-organized records make it easier to prepare a tax return and help provide answers if the return is selected for examination or if the taxpayer receives an IRS notice.
Records to Keep
- Tax-related documents – This includes wage and earning statements from all employers or payers, interest and dividend statements from banks, certain government payments like unemployment compensation, other income documents and records of virtual currency transactions.
- Receipts, canceled checks, and other documents (electronic or paper) that support income, a deduction, or a credit reported on their tax return.
- IRS letters, notices, and prior year tax returns. Taxpayers should refer to this letter when filing their 2021 tax return in 2022.
- Property records – Keep any records relating to the dispose of or sell of property. Taxpayers must keep these records to figure their basis for computing gain or loss.
- Business income and expenses – Business taxpayers should find a method that clearly and accurately reflects their gross income and expenses. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.
- Health insurance – Taxpayers should keep records of their own and their family members’ health care insurance coverage. If claiming the premium tax credit, they’ll need information about any advance credit payments received through the Health Insurance Marketplace and the premiums they paid.