It is important to organize your tax receipts and records because it makes it easier to file returns every year. Most people make the mistake of misplacing their tax records and receipts after filing their tax returns, which can lead to disastrous results. The Internal Revenue service can make a visit to your business and ask to see your records or receipts. It is therefore important to keep all your records in order to avoid wasting time when the IRS comes for an audit using the tips provided below.
1. Keep receipts
Whenever an IRS agent comes to conduct an audit, they will usually ask for receipts to support all the expenses the business has incurred during the year. Although businesses usually provide books and records to prove the expenses they incurred in a year, the IRS can ask for other supporting documentation, such as receipts for credible evidence.
2. Gather all relevant records
It is also important to keep all the various financial statements from the bank, receipts, income deductions, bills, credit card receipts and any credits on your credit returns. These additional documents will come in handy when you are filling your tax returns by attaching them on your paper. You can also scan them and save them in a digital tax file.
3. The seven year rule
According to IRS, you should keep your tax returns in a safe place for a lifetime. IRS does not have any limitation and can ask for proof that you filed tax returns for any year, despite the amount of time that has elapsed. It is therefore important to store your tax returns and the supporting documents in separate files. This is easy as you can label the file for each year before putting the tax returns and supporting documents and hang on the for at least 7 years in case of an audit.
4. Keep your files in home office
The labeled files containing the tax returns for every year should be kept in as safe place in your home office, of your kbhomes home. Store the archived labeled paperwork in a fireproof safe or a file drawer in your home office to ensure they remain safe.
In essence, keeping all your tax paperwork organized every year helps you in filling your returns within the shortest time possible. You also feel prepared for any audit because you have all the supporting documents.