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Keeping track of records for your personal taxes

Info Guru, Catalogs.com

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Organized personal tax records and correct calculations help you prepare your tax return
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Organizing your tax records can pay off, sometimes even financially

No matter who prepares your tax return, the importance of organization in your personal tax records can't be understated. Even if your tax return is simple and you do it yourself, keeping track of records for your personal taxes makes filing the return a quicker job. You won't have to stop and hunt for every piece of documentation and then amend your taxes because you were missing something you forgot about. And the more complicated your tax situation becomes, the more important organization of your personal tax records becomes, whether you prepare the return yourself, use software, or outsource to a CPA.

 

Keeping the Right Paperwork for Your Personal Taxes

 

The first step in organizing your personal tax records is keeping the right paperwork. So much paper may come through your house that you end up throwing away things you need. MSN Money has put together a helpful list of what you really need to do your taxes. It's a pretty comprehensive list, including notes on which forms come from other people and which information you must track in your own personal tax records.

 

However, they leave a few things off the self-employment section. If you are self-employed, you should keep any 1099s your clients issue. And you must track all your business income for two reasons: (1) You want to make sure the 1099s you receive are accurate; clients do sometimes make mistakes in preparing these forms. (2) Clients are not required to prepare 1099s unless they pay you a certain amount of money (currently $600) in a given year. But you are responsible for taxes on all business income you receive, regardless of whether those earnings were reported on 1099s.

 

Keeping Track of Records for Your Personal Taxes

 

Keeping the right pieces of paper is only a small part of what you may need to do. You also should keep lists or ledgers of any income or expenses that will affect your taxes. If you've prepared your own returns before, you should have a pretty good idea what falls in this category. Most income does, but there are some exceptions, including the occasional yard sale and small gifts. (But if sales become a recurring source of income or if gifts reach a certain dollar amount, currently in the teen thousands, you are responsible for paying taxes on these amounts, too.)

 

Tax-deductible expenses can include many different things, including but not limited to medical bills, employment-related expenses, tax return preparation, state taxes, home mortgage, and charitable contributions. For more information on these and other deductions, check out Kevin McCormally's article, "The Most-Overlooked Tax Deductions."

 

Keeping track of records for your personal taxes can take one of several forms, depending on your needs. If you carry on a lot of complex dealings, you may benefit from using financial software to record all transactions and generate reports. If your needs are pretty simple, you can set up a basic spreadsheet for your personal tax records. You could even handwrite a list, although this method would consume more time and invite more opportunities for calculation errors.

 

At the very least, you should separate receipts and other supporting documentation into separate folders for each type. Keeping the documentation organized throughout the year will make it easier for you to sift through personal tax records at the end of the year and prepare your tax return correctly and on time.

 

If you use an accountant, your accountant will also be able to make the most of your tax return if you can provide all the documentation in your stack of personal tax records. The less time the CPA must spend sorting through records, the lower your rate will probably be. Plus, an accountant cannot work with numbers you don't provide.

 

References:

"Reporting Auction Income and the Tax Gap," IRS

"Frequently Asked Questions on Gift Taxes," IRS


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