Keeping good tax Records

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How do I keep good records?

Keeping good tax Records

Start now to begin next year's record keeping. It will save you time, frustration, and money. Here are some suggestions to follow:

  • Do monthly bank reconciliations. By keeping this task current, you can catch any bank errors (they do happen). You also will be able to notice any incorrect postings. For instance, there may be credit card transactions that you did not do. There may be automatic withdrawals that you did not do. By performing your monthly bank reconciliation, you will keep on top of this. If you do not do bank reconciliations, identity theft may be occurring and you are not aware of it. Be forewarned.
  • Keep a file of bills. Even better, keep an itemized file (separate file for each expense). If you have enough recurring payments (such as utilities, car payments, gasoline, etc.) – start a folder for each one. Within that folder you may want to break it down into months. This, of course, depends upon whether the amount of transactions is large enough. Start a file for all your major purchases. Put your paid receipts in here, copies of cancelled checks, and instructional booklets (if any). Keep this file for as long as you own the property. Records in this file will contain your cost basis.
  • Start a file for your insurance documents. This will come in handy when situations arise where this information is needed.
  • Maintain a file for your vehicle information. This will include your lease documents, purchase agreements, installment agreements, car titles, car maintenance records, and mileage logs. If you use your vehicle for business use, keep a mileage log. Record your beginning and ending odometer readings for each trip. Have a space for an explanation/destination/purpose. Record your transactions on a daily basis. At the end of each day, record every check you paid and every source of income you received. For individuals, do this manually. For business owners, you can use a software program.
  • If you use accounting software, keep it current. As part of your daily routine, record each transaction. Update your check register on a daily basis. By maintaining proper records, you will solve two concerns: For the IRS, it will show due diligence. You will have documentation to back up your reported tax figures. They like that. For yourself, it will save you frustration, time, and money.

   

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