In general, you should keep all personal tax returns along with anything that backs up what you have reported on your tax returns. So, anything you used as supporting documentation to claim credits, deductions, or other line items on your tax return that you should hold on to.
You don’t want to be in a situation where you are being audited by the IRS and have no receipts or other crucial audit documentation.
We will go over the top eleven documents you will most likely need if you are audited and why you should keep them handy. Reduce your chance of being audited by holding on to important documents. Remember to never mail the IRS original documents; they suggest sending in copies of your original records instead.
Keep receipts, organized by date with notes on them, explaining what they were for and how they relate to your tax return. Make sure they show what you paid for, the dollar amount, and the date of service or purchase. These can come very handy when calculating your home office deduction on your self-employment tax return.
As you organize your bills for the IRS, make sure each one reflects the name of the individual or company, the type of service the bill was for, and the date of purchase.
The IRS does request that you match these up with the bills they paid for and any employee reimbursement that was related to the expense.
You will want to make sure these papers are well-organized and relevant to your credits or deductions taken on your tax return. Some examples of legal papers the IRS may request include divorce settlements, including custody agreements, and property acquisition records.
With loan agreements, you will want to give the IRS copies of your original loan documents with all of the details that you have available, anything explaining what the loan agreement was all about. For example, you’ll want to include the bank name where you got the loan, the names of the borrowers, and the interest rate used for the loan.
Logs or diaries can be especially helpful when claiming certain activities like job hunting, gambling, and business expenses, such as those used on Schedule C. To show you legitimately claimed these expenses on your annual tax return, be sure to hold on to these records.
One example of something you may wish to have available is mileage logs and records as they pertain to business expenses like that.
Make sure you label your tickets used when traveling with the purpose of the business trip, grouping like items together. For example, if several tickets were used for the same business trip, you should group them together. The IRS also wants you to keep lottery tickets, as they serve as proof of profit or loss when gambling.
You may need medical and dental records if they pertain to specific items on your tax return. Keep copies of information regarding your medical savings account, physician bills or statements, and any capital improvement records with medical information. For more information on this item, check out the IRS’s page for Medical and Dental Expenses that May Impact Your Taxes.
The theft or loss records you may need for the IRS include insurance records, photos or videos documenting the extent of the damage done, and other explanations of the loss to prove your case. Sometimes, the best option can be to work with a tax professional who knows audit and tax preparation front and back.
Hold on to uniform policies and dress codes. Of course, if there were any education expenses or related documents for your employees, keep those as well. Always save your W-2 statements, too.
Schedule K-1 is for the shareholder’s share of income, deductions, credits, inc. If this applies to you, be sure to hold on to these records, as well.