Are you a tax record pack rat--hanging on to every tax return you've ever filed as well as all supporting documents and receipts? Or perhaps you toss out old tax returns either at home or in your business whenever the spirit moves you, or when cabinets and storage areas overflow with too much paper.
Either way, it makes good tax sense to periodically review your record-keeping habits. Organized, accurate tax records can help reduce your yearly tax bill and may even bail you out of an IRS audit.
Keeping good tax files is necessary if, for some reason, you need to submit an amended return; they can also be helpful to the survivor, executor or administrator of your estate. Above all, you have to be able to retrieve records when you need them. If you can't locate the tax records you need, you may spend hours--even days--going back to various sources to request statements and receipts.
If your business has limited space for tax records, James DeJesus, a tax partner with accounting firm Deloitte & Touche LLP in New York City, suggests keeping the past two years' records on site and storing remaining ones in a storage space or in a warehouse devoted to recordkeeping. You should also create copies or backup files for your tax documents and store them off site in case of a fire or natural disaster. This is true not only for tax records but for vital records such as your accounts receivable ledger. You want to be able to remember who owes you what. Warns DeJesus, "If you don't have backup files to provide this data, your business could be significantly interrupted if you were hit with a natural disaster."
Joan Szabo is a writer in McLean, Virginia, who has reported on tax issues for more than 11 years.