Your Taxes

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Regularly recording federal income tax-related expenses can ensure that you do not overlook small expenses that can add up to significant annual deductions.

If the IRS suspects you have substantially understated your income (unreported income amounting to more than 25 percent of the income shown on a federal income tax return), the IRS can audit federal income tax returns for the previous 6 years. If you are suspected of fraud, or if no federal income tax return was filed, the IRS can conduct an audit as far back as necessary.

Safely store federal income tax returns and supporting documentation in the event of an audit by the IRS. Visit www.irs.gov for more information.

Some documents must be stored even longer for federal income tax purposes. For example, if you make nondeductible contributions to an Individual Retirement Account (IRA), you must retain all records pertaining to the account until you have withdrawn your money from the IRA, which could be when you are over 70 years of age.

If you own shares in a limited partnership, keep all documents for at least 3 years after all property in the partnership is sold.

Preparing For Your Federal Income Tax Return

Banking. Include canceled or imaged checks and monthly account statements. Keep deposit, withdrawal and transfer slips until those transactions appear on monthly statements. Some financial institutions do not return the actual checks and deposit slips but instead send you an image statement of substitute checks of several checks on each page. The IRS will generally accept image statements in lieu of actual checks or deposit slips.

Your check register can be your guide to federal income tax-deductible expenditures, which can be highlighted with an asterisk in the margin when you write the check. If you are banking electronically, use the category options to indicate federal income tax-deductible transactions.

If you use a debit card or make a cash withdrawal from an ATM, save the receipt and record the amount in your checkbook register. Write the check number and date on the back of each corresponding bill or receipt you file. In case of an audit you can easily find the canceled check, check carbon or imaged check from your banking file. An alternative method is to attach the canceled check to the corresponding receipt and place both in the receipt folder.

Deductible contributions. File receipts for cash contributions, canceled checks, expenses you incur for volunteer work and any receipts or records associated with charitable gifts, including donations of used clothing, equipment or furniture.

Employment and business expenses. If you or your spouse have second jobs or are self-employed, keeping receipts and documenting business-related travel and business expenses is essential. It is helpful to save all receipts, even those $25 and under in case of an IRS audit.

Your business log should identify what you spent, where, on what date and for what business purpose. Entries for dining and entertaining must identify the individuals entertained, along with company and title. Similarly, if you use a vehicle for business purposes, your log should indicate where you began and ended your trip, the number of miles traveled, the purpose of related business meetings and when they occurred. Recordkeeping is simplified when you record this information at the time you incur the expense. Use the back of your receipt and keep your log available.