Good Record-keeping is an Essential Element of Tax Planning

I can go on ad nauseum about the importance of good record-keeping. Of course, being an accountant, I may be more than a little biased. I won’t say that good record-keeping is THE most important piece of the business world BUT it is certainly near the top. You simply must have a way to keep score. Without knowing the score, you may be using the wrong playbook. Most businesses have poor records which results in inaccurate financial statements. Making decisions from incorrect data just sets the stage for a disaster. Eventually, most of your day will be wasted answering calls from past due or incorrect payments on your invoices, screwed up orders, improper or missed billings, unable to obtain credit, poor credit history and losing money all the while not knowing you are underwater until it is too late.
                                                -Mark

Now is a good time for people to begin thinking about next year's tax return. While it may seem early to be preparing for 2021, reviewing your record-keeping now will pay off when it comes time to file again.

Here are some suggestions to help taxpayers keep good records:

• Taxpayers should develop a system that keeps all their important information together. They can use a software program for electronic record-keeping. They could also store paper documents in labeled folders.
  
  
• Throughout the year, they should add tax records to their files as they receive them. This includes Notice 1444, Your Economic Impact Payment, and unemployment compensation documentation. Having records handy makes preparing a tax return next year easier.
  
  
• Taxpayers should notify the IRS if their address changes. They should also notify the Social Security Administration of a legal name change to avoid a delay in processing their tax return.
  
  
• Review their tax return to make sure they didn't overlook any credits or deductions. Double check credits and deductions. Records that taxpayers should keep include receipts, canceled checks and other documents that support income, including any unemployment compensation.
  
  
• Taxpayers should also keep records relating to property they dispose of or sell. They must keep these records to figure their basis for figuring gains or losses.
  
  
• Taxpayers should keep records for three years from the date they filed the return. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.

Credit given to – IRS.gov – click here for original article

This week’s Author – Mark Bradstreet, CPA

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

–until next week.