Nobody likes thinking about paying taxes – but it’s unavoidable. Whether you file your own taxes or hire someone to help, you can make the whole process easier by creating a record-keeping system at the beginning of the new year, then keeping it up to date until tax time. This is also the best way to help ensure that you get all the tax benefits for which you are eligible and also avoid paying additional taxes or penalties.
The first thing to do is make sure you keep all of your records in a single, secure place. For instance, if you keep paper records it’s a good idea to buy a fire- and water-proof safe – and you may also want to make multiple copies of documents and keep them in different places. If your records are digital, it’s important that they are kept secure by using strong passwords and utilizing a reliable back-up system.
So what records should you keep? Your checkbook is always important – and if you use budget or tax software these can help you to record income and expenses that are needed for your tax return. However, there may be many other important records that you need to hold onto, including the following.
- Forms W-2 and 1099
- Sales Slips/Receipts
- Credit Card Receipts
- Invoices
- Bank Statements of all types
- Brokerage or Mutual Fund Statements
- Canceled Checks
- Insurance Records
- All Agreements/Documents related to Home Purchase or Sale
While this list is not comprehensive, the idea is to organize all financial documents that apply to your yearly income tax return in one place. If you make a habit of doing this, you’ll have all the documents you need readily available when it’s time to do your taxes.
