Keep Good Records to Maximize Tax Time Savings

Tax preparation can turn confusing fast if your records aren't in order. Furthermore, some big tax-saving opportunities require extensive tax records for items such as interest deductions, unreimbursed business expenses and charitable contributions.

There is no one best way to organize your tax records. However, you must set up a system that works for you and fits your way of finding things. A good place to start getting your records in order is to know which tax records you need to keep. Here's a snapshot of what you should hang on to:

Charitable Giving Information: You must keep receipts for any contribution of goods or services over $75. To deduct cash donations of $250 or more made at any one time, you must have written confirmation from the recipient organization. Keep a log of out-of-pocket expenses for charitable works, such as bus or taxi fares, auto mileage, tolls, parking fees, and the cost and cleaning of uniforms. In your record, enter the name of the charity, the date of the expenses and the amount.

Did you donate cash, time, or other goods and services to benefit victims of Hurricane Katrina? Read information specific to the Katrina Emergency Tax Relief Act of 2005 to find out what you need to know about this special circumstance.

Gambling Records: This can be a simple log that lists the type of gambling activity, how much money you won or lost, the location or address of the establishment, the date, and the names of others who were present with you, if applicable.

General Financial Documents: Keep documents such as pay stubs, W-2 forms, records of tips you were paid, sales receipts or contracts of big-ticket items such as the purchase or sale of an automobile or home, investment records, along with contributions to retirement accounts, bank and brokerage statements and 1099 forms.

Insurance and Medical Records: Save all papers regarding insurance claims and medical expenses along with dates and specifics as to what was paid for, when it was paid, and what was reimbursed by insurance (if applicable).

Receipts for Deductible Items: If you make payments toward an item that is tax deductible record the dollar amount, payee's name and date of the transaction. Depending on your method of payment, keep related credit card receipts and bank statements, and record personal check numbers. If you make a payment in cash, you will need to get a signed and dated receipt showing the amount and reason for the payment.

Self-employment Records: People who are self-employed or use their home for business need to keep a special set of records. Contact your tax professional for advice and additional information.

Theft or Loss Documentation: If you suffered a theft or casualty loss, document it by including the property's value, the date the property was first noticed missing or damaged and proof that it was yours. It might be necessary to have a copy of the police report, if one was filed, especially if the item was very valuable.

We also recommend that clients separate their tax records into current and long-term files," says Jackie Perlman, senior research analyst with H&R Block. "Current tax files should include all of the items mentioned above for the current tax year. Long term files should contain at least six years of tax returns, along with home improvement receipts, cancelled checks and pay stubs for the previous tax year."

If you have more questions about tax planning, consult with one of our tax professionals.

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