Businesses and individuals alike should be encouraged to keep good financial records. For businesses, it is a legal requirement to produce financial information when filing tax returns. This includes keeping records of income and outgoings, cash flow and profit. If businesses cannot produce accurate records, problems can arise when declaring tax.
Individuals should also keep good financial records and receipts. This can be useful when tracking previous spending history or planning investments and savings for the future.
Filing tax returns
Financial records for filing tax returns need to be kept for seven years. Information required includes previous returns and tax return deductions. This also includes receipts for interest applied to mortgage payments and contributions towards retirement. Any payments made to charity and alimony also needs to be recorded.
It is important that your financial records are accurate and up to date. That is why many people, individuals employ contractor accountants to help prepare or file their tax returns on their behalf.
The IRS has up to three years to investigate your tax returns once they have been filed. This audit process will uncover any mistakes or fraudulent returns made. If mistakes are found that show you have underestimated gross income by over 25%, the IRS has up to six years to challenge the return.
Individual Retirement Accounts
Financial records must be kept for people making IRA contributions. These records are required to be kept permanently. Contributions made that are non-deductible should also be recorded, to ensure proof of paid tax.
Retirement and Savings Statements
The requirement to keep records and bank statements for retirement and savings plans differs depending on the type of records they are. Quarterly statements should be kept until the annual statement is received and if everything is ok, the quarterly statements can be destroyed. On the other hand, annual statements must be kept for the length the account is held.
Checks that relate to business expenses, taxes and payments regarding housing or mortgages must be kept.
Brokerage Statements and Bills
The length of time you possess the securities determines the length of time you must keep brokerage statements. Items such as purchase or sales slips must be kept when filing tax returns in order to show where capital gains and losses have been made.
Bills should be destroyed only when the cancelled check has been received that shows the bill has been paid. However, it is a good idea to keep bills from larger purchases in case you are required to provide proof of their value. This could be required if you are claiming on an insurance policy due to loss or damage.
House or Condominium Records and Receipts
Home improvements and renovations require you to keep a hold of records. This includes receipts that provide details of costs and purchase prices. Financial records relating to the purchase or sale of your home should also be saved and stored carefully. These records include expenses such as legal fees and real estate agent commissions. You should keep these records for up to six years after you have sold your property.
Post by Sophie