BASIC RECORDS FOR INDIVIDUAL TAXPAYERS
The IRS does not require individual taxpayers to keep their records in a particular way. Keep them in a manner that allows you and the IRS to determine your correct tax. You can use your checkbook to keep a record of your income and expenses. In your checkbook you should record amounts, sources of deposits, and types of expenses. You also need to keep documents, such as receipts and sales slips, that can help prove a deduction.
You should keep your records in an orderly fashion and in a safe place. Keep them by year and type of income or expense. One method is to keep all records related to a particular item in a designated envelope. In this section you will find guidance about basic records that everyone should keep. The section also provides guidance about specific records you should keep for certain items.
Many retail stores sell computer software packages that you can use for record keeping These packages are relatively easy to use and require little knowledge of bookkeeping and accounting. If you use a computerized system, you must be able to produce legible records of the information needed to determine your correct tax liability. This may involve keeping a copy of the original program (specifically the correct version) used to input the records, in order to guarantee printing legible copies. In addition to your computerized records, you must keep proof of payment, receipts, and other documents to prove the amounts shown on your tax return.
Copies of Tax Returns
You should keep copies of your tax returns as part of your tax records. They can help you prepare future tax returns, and you will need them if you file an amended return. Copies of your returns and other records can be helpful to your survivor or the executor or administrator of your estate. If necessary, you can request a copy of a return and all attachments (including Form W-2) from the IRS by using Form 4506, Request for Copy or Transcript of Tax Form. For information on the cost and where to file, see the Form 4506 instructions.
Basic records are documents that everybody should keep. These are the records that prove your income and expenses. If you own a home or investments, your basic records should contain documents related to those items. Income. Your basic records prove the amounts you report as income on your tax return. Your income may include wages, dividends, interest, and partnership or S corporation distributions. Your records also can prove that certain amounts are not taxable, such as tax-exempt interest.
For items concerning your income, keep the following as basic records...
- Form(s) W-2
- Form(s) 1099
- Bank statements
- Brokerage statements
- Form(s) K-1 Expenses.
Your basic records prove the expenses for which you claim a deduction (or credit) on your tax return. Your deductions may include alimony, charitable contributions, mortgage interest, and real estate taxes. You may also have child care expenses for which you can claim a credit.
For items concerning your expenses, keep the following as basic records...
- Sales slips
- Canceled checks or other proof of payment
Your basic records should enable you to determine the basis of your home. You need this information to determine if you have a gain or loss when you sell your home. Your records should show the purchase price, settlement or closing costs, and the cost of any improvements. They may also show any casualty losses deducted, insurance reimbursements for casualty losses, and postponed gain from the sale of a previously-owned home. For information on which settlement or closing costs are included in the basis of your home, see Publication 530, Tax Information for First-Time Homeowners.
For information on basis, including the basis of property you receive other than by purchase, see Publication 551, Basis of Assets. When you sell your home, your records should show the sales price and any selling expenses, such as commissions. For information on selling your home, see Publication 523, Selling Your Home.
FOR items concerning your home, keep the following as basic records...
- Closing statements
- Purchase and sales invoices
- Proof of payment
- Insurance records
- Form 2119 (if you previously sold a home)
Note: Due to the current tax law changes, and assuming most taxpayers reside in their homes for at least two years it will be very rare for any taxpayer to have a taxable transaction on the sale of their primary residence. However, under the remote chance that you are to get audited it is commended to keep track of your basis in your primary residence.
Your basic records should enable you to determine your basis in an investment and whether you have a gain or loss when you sell it. Investments include stocks, bonds, and mutual funds. Your records should show the purchase price, sales price, and commissions. They may also show any reinvested dividends, stock splits and dividends, load charges, and original issue discount (OID). For information on stocks and bonds, see Publication 550, Investment Income and Expenses. For information on mutual funds, see Publication 564, Mutual Fund Distributions.
FOR items concerning your investments, keep the following as basic records...
- Brokerage statements
- Mutual fund statements
- Form(s) 1099
- Form(s) 2439