With changes to electronic records, the way we store records and where we store them has changed—and not necessarily for the better. When it comes tax time and you have to locate everything, getting the paperwork all together, it is often no longer in one box or file cabinet.
So much of our financial information is now in electronic format. This does make it easier to keep your financial records because they are in one convenient place. Consider it is wise to safeguard paper copies against fire, water, and theft. “They burned” or “There was a flood” is not a viable excuse if the documents are destroyed. You may even want to consider keeping multiple copies of records.
If you decide to go digital, you'll have to scan in your hardcopy records. Be sure to keep the files secure and have a backup flash drive, stored in a fire and waterproof location away from your computer.
Hanging on to all tax-related documentsthat help you identify sources of income.
Keep track of expenses in an orderly manner, whether it is filing in categories, by day/month, or whatever works for you.
Keep all papers that help you calculate the value of property, and prepare tax returns or support claims made on those returns.
An easy rule of thumb about all tax materials is: Retainall tax papers until any chance of audit is over. Usually, this is three years after filing. However, be aware that if the IRS thinks you under-reported your income by over 25 percent, it can go back as far as six years.
Set up a record system that works for you. This might be labeled file boxes. It might be drawers in a filing cabinet. Your method should make it easy to find the tax materials for the year you need.
If you are selling your house, the sale profits from your home sales may NOT be taxable. To ensure that you can claim the best deduction for your house when sold, keep all paperwork relating to your house as long as you own it.
For investment records, such as investment account statement, you need to keep these as long as the stock or mutual fund is yours. The eventual worth of the stock,minus your costs, is what will be used to determine your taxable income on the investment. Additionally, keep all retirement investment records. Contributions to traditional IRAs often are tax-deferred. However, so of the money in these accounts may have already been taxed. Thus, you need to keep detailed records when you begin taking money out of your IRA, to ensure how much of the distribution is taxable.