BASIC vs. SPECIFIC RECORDKEEPING

There are two categories of records that all taxpayers should keep for tax reporting purposes. The following will describe both types.

BASIC RECORDS

These are documents that everyone should keep. The following lists the documents that should be ket as basic records for income, expenses, home and investments:

INCOME: Form W-2(s), Form 1099 (all types), bank statements, brokerage statements and Form(s) K-1.

EXPENSES: sales slips, invoices, records, cancelled checks or proof of payment.

HOME: closing statements, purchase and sale invoices, proof of payment and insurance records.

INVESTMENTS: brokerage statements, mutual fund statements, Form(s) 1099 and Form(s) 2439

SPECIFIC RECORDS

The following is a list of items that require specific records in addition to basic records.

ALIMONY. If receiving alimony, a taxpayer should keep a copy of his or her written separation agreement or the divorce, separate maintenance, or support decree. If paying alimony, the taxpayer will need to know the former spouse’s social security number for filing purposes.

BUSINESS USE OF THE HOME. A taxpayer should kee records that show the part of the home that is used for business and the expenses related to that use.

CASUALTY AND THEFT LOSS. To deduct a casualty or theft loss, a taxpayer must be able to prove that there was casualty or theft. The records also must be able to support the amount claimed.

CHILD CARE CREDIT. A taxpayer must give the name, address, and taxpayer identification number for all persons or organizations that provide care for a child or dependent.

CONTRIBUTIONS. The taxpayer must keep all records pertaining to the contribution.
If you find yourself in an audit situation, these are the types of records that the IRS will require you to produce to justify any deductions. Generally, without these records, the IRS will disallow any deduction that you may have taken on your return. It is always better to be proactive rather than reactive!.