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Time for tax recordkeeping

Did you spend the weekend sorting through the tax material you used last week to file your 1040? Me neither.

But it's time to do just that.

Getting your post-filing records in order is just as important as having them handy when you fill out your return. The main reason is that you might need them to persuade an auditor that all your claims are legitimate.

My tax filing preparation That's my tax filing paperwork there to the left.

As I mentioned in an earlier post, I do a down and dirty paper return before transferring the data to my PC tax software.

In preparation for the PC, I spread all my tax documents on the floor and then stack in the appropriate files.

Yes, that's an adding machine. I like the printout that shows not only the total but the number of items per each category; for example, 17 trips to the post office last year to mail or pick up work related material.

Yes, that's a magnifying glass. I'll admit it. Some substitute 1099 forms are a challenge for filers of a certain age!

And yes, that's the TV remote. Hey, I can do a rough draft of my taxes and watch a baseball game at the same time.

The best thing this year was that I got to use up all those pink Post-It notes when I labeled my filing categories. I hate that color. It's so dark that my scribbles don't always show up clearly.

How my taxes stack up: The stacks represent material that goes on a tax form: W-2s for the 1040; 1099-INT and DIV for Schedule B; mortgage company statement, property tax payment copy and charitable gift receipts for Schedule A.

My Schedule C gets lots of stacks: 1099-MISC forms from employers, various work-related deductions (mileage, business meeting meals, supplies, marketing materials, etc. etc. etc.).

Hanging onto all this material is easy. The papers go back into my 2009 taxes accordion file. Then that goes into the filing cabinet, alongside the 2008, 2007, 2006 and 2005 counterparts.

Am I keeping too many years of tax records? Maybe.

How long to keep tax records: The general rule is to hang onto filing documentation for at least as long as the IRS can come asking questions, which generally is three years.

However, the period of limitations detailed in IRS Publication 552, Recordkeeping for Individuals is longer for certain other filing situations.

And technically, the IRS can come after you any time it thinks fraud has been involved in your filing. So if you're worried that Uncle Sam might thing you've been scamming him at tax time, you should hang onto your records for, well, forever.

OK. That's a tad unrealistic. Basically, use your common sense. 

Hang onto the documentation you used to file for the applicable limitation period.

And always keep copies of all your returns for even longer.

Right now I'm saving everything that's related to my business that I started in 2005. And yes, I have paper copies of every 1040 the hubby and I have filed jointly since we married in 1982. Maybe this year will be the one that I scan those forms.

Yes, the record keeping, both pre- and post-filing, is a pain. But it could pay off.

Remember, when it comes to taxes, the usual rules don't apply. You're considered guilty by the IRS until you prove your filing was correct and deductions et al were legitimate. So having the material to support your position is critical.

Recordkeeping help on the way: Stay tuned for help in sorting through your tax records (and filing documents). Later this week, I'm giving away something that could really help you get your filing act together.

Welcome to the Weekly Tax Tip: This post is the first of our new feature, the Weekly Tax Tip.

As I mentioned in last week's final Daily Tax Tip (Bunching your deductions), we'll keep offering tax tips in the upper right corner of the ol' blog through the end of the year.

If you miss one, they'll be collected at Weekly Tax Tips for 2010.

Then when the 2011 filing season begins, we'll go back to our daily tax tip schedule, which, if you want a refresher, is still available at that comprehensive daily tax tips list.)

Related posts:

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