It’s my annual “Taxes from A to Z” series! For the series, I’ll focus on terms that you might see on your tax forms and statements but not necessarily in the headlines. If you’re wondering whether you can claim wardrobe expenses or whether to deduct a capital loss, this is one series you won’t want to miss.
X Is for Xerox.
(Okay, this feels like cheating but X is pretty tough – especially without duplicating prior years. But I promise I’ll make it worth your while.)
Once you sign your return, there’s one more step you’ll want to take before you pop your return in the mail or hit send on your computer. You need to copy (or Xerox, for those of us who are old school) your return and attach to your supporting documentation or copies of your supporting documentation if the originals will be included with your return.
What do you need to hang onto? In addition to a copy of the return, copy any information forms (like a W-2 or 1099-R) or original documentation included with your return (clearly, if you have an extra copy of an information form from the issuer, there’s no need to make yet another).
Records you should keep with your tax return include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return. If you claim depreciation, amortization, or depletion deductions, keep copies of deeds, titles and cost basis records related to the property. If you have employees, including household employees, keep your employment tax records including forms W-2 and W-4, as well as related pay information including benefit forms. If you have property that will result in a taxable event at sale or disposition like stocks, bonds or your home, you’ll want to keep records which support your related tax consequences (capital gains, etc.) – note that rules that require your broker to furnish your basis are relatively new so don’t toss your old records.
(For information about how long to keep records, check out this prior post.)
Keep your records organized – I recommend arranging them by year – and store them in a safe place. If the IRS comes calling, you’ll want to be able to produce legible records in a pretty timely manner.
And no, you don’t really have to keep paper copies. Electronic records will work, too. The IRS has accepted scanned receipts since 1997, a policy that was memorialized by Rev. Proc. 97–22 (downloads as a pdf). Be sure that your scanned or electronic receipts are as accurate as your paper records and you must be able to index, store, preserve, retrieve, and reproduce the records. In other words, you need to have your records organized and be able to produce them in a hard copy form if needed (the IRS doesn’t want to watch you swipe your smartphone).
