Plan Ahead to Be Ready for Tax Time
Completing accurate tax returns and maximizing your deductions is easy when you’ve got quality records to back up your documents. If tax time always sends you scrambling to find important papers, you likely could get a little more organized with your tax records. To be ready for tax season, maintain an organized tax filing system throughout the year.
Why it’s important to plan ahead
There are two main reasons why it’s important to plan ahead for tax time. The first one is kind of obvious: the more organized you are about filing important tax documents like W2s, receipts, and bank statements, the easier it is for you to complete your taxes and avoid tax mistakes.
The other reason why it’s a good idea to keep organized records is because you might need them after you send off your tax return. You may need to explain a certain deduction to the IRS, and if you’ve got the supporting paperwork at the ready, you can back up any questionable tax items and avoid paying additional taxes or penalties for unsubstantiated items. You may need to refer to documents for up to three years after you file; a document filing system that’ll still make sense several years from now could be of great assistance to you.
All of these steps will ensure that you retrieve the most accurate refund possible, if you are eligible for one.
More tax information on the AG Blog:
- 5 Smart Ways to Spend Your Tax Refund
- How to Prepare for Tax Time
- Sweep Away Bad Budgeting Habits With a Saving Plan
Important tax preparation documents to file
Keeping organized tax preparation records starts with knowing what types of documents are important enough to keep.
You should keep and file each of these documents in order to be ready for tax time:
- W-2s or 1099s
- Bank, brokerage, and mutual fund statements
- Credit card statements
- Sales receipts, cancelled checks, sales contracts, and any other proof of payment
- Pay stubs
- Closing documents for a home purchase
- Insurance and medical receipts
When you look at the documents on this list, you’ll see that these important papers fulfill one of two functions: These documents either verify your income or support your deductions.
For some deductions, you may need to have multiple types of records. For example, you might need to have both a cancelled check and a sales receipt to prove you paid for home repairs. The more written documentation you have to back up your tax return, the better prepared you’ll be should the IRS come knocking at your door to challenge an item.
How long to keep records
Once you’ve filed important documents, the law says you should keep them around for three years from the date you file your taxes. However, it’s a reasonable, even good idea to keep your tax time documents around even longer. The IRS might destroy income tax records after three years, but you and your family may need information from your tax returns many years from now. You may also need to refer to your tax returns for Social Security purposes.
Getting your hands on those records down the line depends on being organized now. So make sure you plan ahead for tax time by doing your due diligence throughout the year.
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