Tax Paperwork: To File or Not to File?

27 Jul

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Tax season: you hate it, but it comes every year and you absolutely must be ready. Believe it or not, most effective tax planning happens before December 31st. That’s because the end of the fiscal year is at the end of December – even though you have until April to file your taxes. Most people want the matter settled and over with as quickly as possible, but there are some documents you should hold onto for several years just in case you’re audited. 

Stocks and Mutual Fund Purchases

Even if you do online tax preparation, you should still keep records of all stock and mutual fund purchases made inside a taxable account for as long as you hold those investments. When you eventually do sell those investments, you’ll need to report the purchase price, when you originally bought them, and how many shares you owned.

Many online brokerage firms keep track of this for you, but it’s a good idea to have a copy for your own personal records.

Form 8606

It’s rare, but it happens – you make non-deductible contributions to your IRA. This mainly becomes a problem when you’ve made the maximum contribution and you want to save more money for your future retirement.

While the IRS caps deductible contributions, there are no limits to the amount of money you can contribute on a non-deductible basis. You just have to keep track of them through form 8606. When you file your taxes, don’t ditch this form. It’s basically the only way you can prove that you made non-deductible contributions. If you lose it, then you may have to pay tax on all of that money again.

Home Purchase and Home Improvement Documents

When you remodel your home, keep receipts for all upgrades and improvements you make. Generally, you want that on file for at least three years after you sell the home. Most people don’t pay tax on their home sale profit since the government allows such a generous exclusion – $250,000 for single filers and $500,000 for married couples filing jointly.

Why keep the records then? It’s a good idea if you move within five years (since the exclusion only applies if you stay in the home at least that long) or if your profits exceed the exclusion. The improvements will become a valuable deduction – but you have to be able to prove it if asked.

Deductions For Home Office

All deductions for a home office should be filed securely for several years. If the IRS ever audits you, you need to be able to show that your deductions are legitimate. The only way to show this is by having those receipts on-hand.

If you do a lot of business online, you can show deductions using digital receipts. As long as you have them stored somewhere, you should be fine. If you’re in a business that requires frequent travel, be sure to keep a log book of your mileage. This is basically the only proof you have that you’ve driven the miles you say you have.

Jeremy S enjoys is a personal finance consultant with a penchant for taxation services. His articles deal with tax issues.

4 Responses to “Tax Paperwork: To File or Not to File?”

  1. Rubin August 21, 2013 at 3:43 pm #

    What can the average person expect to get back on tax returns if they made $25,000 for the year? No actual write offs or anything. I know there are many variables, but what would it be on average?

  2. Staci August 21, 2013 at 10:20 pm #

    My friend, his father, and I started a small motorcycle parting corporation and I am trying to figure out how we handle our personal taxes for any pay we receive from the business, right now we are working for free (to get it up and going first) but when it gets to the point where we are quitting our jobs to do this full time (if that time ever comes) then what to we have to do to treat this like an actual job as in taxes and paperwork to show we are actually employed and what not. Thanks for any information!

  3. Delia August 22, 2013 at 4:11 pm #

    When is the taxes due?

    How long does it take to get refund on the taxes (there is any to get back in refund)?

    I have about 3-4 W2’s to do in taxes,how long/expected time will I need to estimate with the tax person to do them for me?

    THX.
    Thx for answers!

    How much time per W2’s do I have to estimate with the tax person?

  4. Billie August 24, 2013 at 12:02 pm #

    What paperwork I need to fill out and submit? I was recently told I can get money back for being a student with my 1089 form.

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