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The penalties for both
failure to file
and failure to pay
are more severe than the
penalty for failure to pay only,
SO...,
EVEN if you can't pay,
FILE the return anyway. |
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The
information contained in this website provided in good faith. It is
intended for general use only and should not substitute for specific
advice on any given tax issue. It is recommended that you contact me
or another tax professional before implementing any of the
suggestions or information contained herein to ensure that it is
appropriate to both your circumstances and needs.
Pursuant to requirements related to practice before the Internal
Revenue Service, any tax advice contained in this website or
communication from me (including any attachments) is not intended to
be used, and cannot be used, for purposes of (i) avoiding penalties
imposed under the United States Internal Revenue Code or (ii)
promoting, marketing or recommending to another person any
tax-related matter. |
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Record-keeping
Requirements for Individuals and Businesses |
Well-organized financial records will save you time and money - not only in taxes but also
in tax preparation.
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For Individuals |
Here's a quick
rundown of suggested record-keeping for individuals.
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Keep your critical records indefinitely. Other records can safely be discarded after
several years.
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Keep tax returns (and any records used to prepare them) at least three years after the
filing date if you have only W-2 and interest income, preferably six years if your returns
are more complex. The IRS has six years to audit you if it suspects you've underreported
income by more than 25%.
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For investments in real estate, keep records until at least six years after the filing
date of the return reporting the sale of that property.
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For investments in stocks, bonds, and mutual funds, keep year-end brokerage statements
and 1099s and toss interim statements. Retain all brokerage confirmations showing your
cost basis. (You can reduce capital gains taxes by selling specific higher-cost shares.)
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For your home, keep the settlement statement and records of home improvements. These
validate your cost basis for future home sales if they are needed.
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Some records should be retained permanently. This applies to IRAs and pensions (Forms
1040, 8606, 5498, and 1099-R), wills, divorce decrees, and most other legal documents.
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You don't need an elaborate record-keeping system. File tax returns separately by year,
and file investment records by broker. For expenses, even an accordion file tabbed by
category works wonders. Within a given category, use a separate envelope for each year's
receipts and canceled checks, and enclose a tape showing the expense total.
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For Businesses |
What records
should your business keep, and how long should you keep them? There are several categories
of records that are important to a business, some for internal purposes and some for tax
returns and other government requirements. Let's take a look at these by category.
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Tax records. First, consider the records you need to
substantiate your annual income tax return. The IRS says that you must maintain adequate
records, so support almost every item of income and expense that you claim. That means you
must be able to produce receipts, invoices, canceled checks, or banking records supporting
all expense items. Similarly, you should keep sales slips, invoices, or bank records to
support all income items.
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Accounting records. Most businesses have adequate accounting
systems to capture routine transactions, but not for non-routine transactions such as the
purchase of depreciable assets. When you buy a car, computer, or piece of office
equipment, be sure to file all purchase documents, assign an inventory number, and
immediately set up a depreciation schedule.
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Travel and entertainment expenses. Good
record-keeping for
travel and entertainment expenses is essential. Although the rules can be complex, in
general you should capture where, when, who, how much, and the business purpose
for each expense. A well-designed standard expense report form can help insure that your
records contain all the required information. Also, if you have employees who drive on
company business, make sure they keep an auto log showing the miles driven for each trip.
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IRS audits. Generally, the IRS can audit a tax return for
three years after the date it was due or the date the tax was paid, whichever is later.
However, if there is a major understatement of income, they can audit for six years after
the due date (or almost seven years after the tax year). For that reason, you should keep
most income tax records for seven years.
The IRS requires records relating to employment taxes to be kept for at least four years
after the date of the return or the date the tax was paid, although here again a
seven-year rule is safer.
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Corporate records. Every incorporated business needs good
corporate records, including documents associated with forming the company, bylaws,
business licenses, and minutes of all board meetings. Shareholder records should include
stock registers and records of all share issuances and redemptions. Also keep copies of
all contracts and leases. Finally, don't forget current and terminated employee files, and
records of employee pension or profit sharing plans. Most corporate and employee pension
plan records should be kept indefinitely.
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Computer record-keeping. The IRS has established a series of
rules and recommendations concerning how electronic records must be maintained. Generally,
such records should contain the same information as paper records and should be kept for
the same length of time. |
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If you have questions about record-keeping, or if I can assist you in setting up a
system that works, contact my office via email.
I'm here to help. |
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| © This material is copyrighted |
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KATHLEEN R
"BILLIE" LOVETT
CERTIFIED PUBLIC ACCOUNTANT
P. O. BOX 642
REEDSVILLE, WV 26547
PHONE: 304-864-6618
FAX: 304-864-3744
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