Your Tax & Business Advisor
How to Organize Your Tax Records
By Raymond S. Kulzick, CPA, DBA
As published in the Pinecrest Tribune. January 19, 1998.
I resolved last year to get my personal tax records in better order. What do you suggest?
Although it's safe to say that no tax professional wants to get a shoe box filled with jumbled receipts, how CPAs prefer to receive client information can vary. So, start by asking your accountant what information he or she needs and how he or she wants it organized. The following system will be helpful:
Organize your information into five folders or large envelopes: QUESTIONS, BACKGROUND, INCOME, DEDUCTIBLE EXPENSES, and SPECIAL ITEMS. For the QUESTIONS folder, write down all questions you have as you think of them, as well as any information that you think might be helpful but aren't sure in which folder it belongs.
In the BACKGROUND folder include last year's tax return, any changes in status (marriage, divorce, new dependents, children who have left home or gotten married, etc.), and change in address. Remember that all dependents must have Social Security numbers.
The INCOME folder should contain everything relating to income received. This includes W-2 forms from employers, Social Security reports, 1099s for interest and dividends, K-1s for Partnerships and S-Corporations, pensions received, withdrawals from retirement plans, and any other income received. It is a good idea to review your last year's return to be sure you have all the income sources.
For DEDUCTIBLE EXPENSES, include documentation of all items that might be deductible. The more common deductions are: medical and dental expenses, property and intangible taxes, home mortgage interest and points, charitable contributions, and other miscellaneous deductions. If you bought a home last year, include the closing statement. If you had dependent care expenses, remember that you need the name, address, and tax identification number of the provider. If your employer required you to spend money or incur costs for your job that were not reimbursed (for example, visit customers in your personal car), these amounts may be deductible.
SPECIAL ITEMS include everything else. Some typical items are estimated taxes paid (in addition to withholding on your W2s), IRA contributions, moving expenses, health insurance if you are self-employed, and alimony paid (alimony received should be in the INCOME folder).
If you had investments (besides IRAs, 401Ks, or other qualified plans), you will need a year-end statement showing a detailed listing of what you owned at the end of the year, as well as information on any investments sold (date of sale, date of purchase, and cost). If you receive more than one statement from brokers or mutual fund companies at year-end, put them all in the folder. If you sold your home or other property, include your closing statements and any information you have on improvements. Although there is now a large exemption for the sale of a primary residence, it still must be reported, even if no tax is owing.
If you have rental property, you will need to gather complete information on income received, days rented, available for rent, and any personal use days, as well as all expenses incurred.
If you were self-employed, had a business, or were an independent contractor, you must document all income received and all items of expense. These should be summarized by category. Ask your CPA for suggestions.
Remember, your accountant is there to help you. So if you have questions about what information is needed, you should feel free to call. When in doubt, put it in the QUESTIONS folder. Your goal should be to provide enough information, in an organized way, so that your tax return will be accurate and you will receive all the deductions that you may be entitled to. Keep the shoe box for your shoes.
Raymond S. Kulzick is a CPA, technology and management consultant with offices in Pinecrest at 12177 S. Dixie Highway. If you have questions or suggestions for future columns, please contact him at 305-233-2280 or rkulzick@kulzick.com. More information is also available on the firm's Web site at http://www.kulzick.com/businesspro.
This article provides information of a general nature only and should not be acted upon without seeking appropriate professional advice concerning your specific situation.
© Copyright 1998 Raymond S. Kulzick. All rights reserved. 980119.
This publication provides business, financial planning, and/or tax information to our clients. All material is for general information only and should not be acted upon without seeking appropriate professional assistance.