Tis the Season - For Taxes!
It seems we just get the Christmas tree down and the ornaments repacked when it's time to think about income taxes! Sadly most people give less thought to storing important tax information than to organizing the green and red plastic bins of holiday decorations.
Do you stay organized all year long or does tax time put you in the same scramble as the "After-Thanksgiving" sales? A small amount of advanced planning and a trip down the office supply aisle may be all it takes to remove part of the sting of income tax preparation.
A fact sheet entitled "A Sample Filing System" is available from the University of Arkansas Cooperative Extension Service and can be a good starting point. It offers suggestions for the type of office supplies you need, coding strategies, and filing procedures. It also lists possible headings for file dividers and is a good memory jogger for types of information that should be kept and organized.
A frequent question is: "How long do we have to keep income tax records?"
In most cases the Internal Revenue Service (IRS) has three years to audit federal income tax returns. The three-year time period is calculated from the date filed (or due) to two years from the date the tax was paid, whichever date is later.
In unusual cases, this limit does not apply. If you failed to report more than 25 percent of your gross income, the IRS has six years to collect the tax or start legal proceedings. There is not a limit if you failed to file a return of willfully filed a fraudulent return.
All receipts, statements or other documentation used for income tax purposes can be kept with a particular year's income tax records. Saved records should include all W-2s, 1099 forms, or any other IRS form you receive for the certain tax year. Receipts are important because the IRS doesn't accept a cancelled check as proof of payment. It may also be a good idea to keep a copy of the year's bank statements to help recall financial activity just in case you face an audit.
Assuming your financial activity is non-eventful, you can discard your tax records sometime after seven years. One piece of evidence you may want to save in your retirement files is any IRS Forms 8606, Nondeductible IRAs and Coverdell ESAs, you filled in the years when you made a nondeductible contribution to an Individual Retirement Account (IRA). This evidence is needed to justify why any portion of IRA withdrawals are not fully taxable.
For more information on "Important Family Records - What to Keep and Where", contact me at Poinsett County Extension Office, 302 North Main, Harrisburg. You may email me at firstname.lastname@example.org or call me at 870-578-4490.