Make Tax Filing Easier With a Record-Keeping System

Sound record keeping can save you time and money at tax time

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Do you dig frantically through piles of papers when tax time rolls around, looking for the records you need to prepare your tax return? Are you unsure which records you should keep and which ones you can safely throw away?

You can make your life easier and ensure that you don't miss any tax deductions or tax credits if you organize your record-keeping system early in the year and keep it up to date.

Key Takeaways

  • Having accurate records can be key if the IRS questions your deductions and your eligibility for any tax credits you claim.
  • You should have invoices, receipts, or some other type of written record of any expenses for which you're claiming a tax deduction.
  • Electronic records are also acceptable, such as credit card or bank statements you download or access from the lender's or bank's website.
  • You're required to maintain your records for three years from the date you file your return. But six years can be a safer rule of thumb. The IRS has this long to audit you in some cases.

Why You Should Keep Good Records

People are much less likely to keep all their relevant records in one place when much of their financial lives exist online or in electronic form. This isn't to say that the record-keeping methods you adopt can't be electronic. But it should be set up so that everything you need is located in one secure place. Other tips:

  • Invest in a water- and fire-proof safe if you keep paper records.
  • Consider keeping copies in separate locations.
  • Scan hard-copy records if you decide to go digital.
  • Keep your digital records and files secure and make sure you have a backup.

Not only will these measures make it easier to file your tax return, but they'll also help ensure that you claim every tax deduction or credit you're eligible for. Keeping records enables you to explain an item on your return if the Internal Revenue Service (IRS) questions you about it in an audit.


The end result of poor record keeping could be a higher tax bill if you're audited and the IRS questions a credit or deduction that you can't back up with proof.

Keeping accurate records can get you all of the tax benefits you're eligible for. It can prevent you from having to pay additional taxes and penalties for unsubstantiated items.

What Records Do You Need?

The records you'll need to keep fall into two broad categories: income records and expense records.

Your checkbook, personal budget software, and online banking tools can all help you remember income and expenses that should be reported on your tax return. But the checkbook or software alone aren't enough to prove the deductibility of your expenses.

For any deductions or credits, you should have invoices, receipts, sales slips, or other written records that spell out exactly what you paid for, in addition to proof of payment such as canceled checks and credit card receipts. Some itemized deductions that you should document in this way include charitable contributions, mortgage interest, and real estate taxes. If you make payments in cash, get a dated and signed receipt showing the total amount and an itemized description of what was purchased.

When it comes to investments in stocks and bonds, you should be able to determine your basis and whether you have a gain or a loss when you sell. This will help to prove that you correctly claimed any income you earned. Your records should show the purchase prices, sales prices, commissions, dividends received in cash or reinvested, stock splits, load charges, and original issue discount (OID).


A spreadsheet is a great way to track investment information. But even a statement from your broker or financial advisor or a handwritten schedule will do.

Be sure to keep your pay stubs as proof of payment if you have deductible expenses withheld from your paycheck. These might include union dues, medical insurance premiums, or 401(k) contributions. These can be paper or electronic, if your employer offers those.

The Most Common Records To Keep

These are some of the most common records you should keep and that you should request if you can't locate them or never received them:

  • W-2 and 1099 forms
  • Bank statements
  • Brokerage and mutual fund statements
  • Form K-1 (for partnerships)
  • Sales slips
  • Invoices
  • Credit card receipts
  • Canceled checks or other proof of payment
  • Home purchase and sales agreements, closing statements, and insurance records

How Long Should You Keep Records?

You should keep records for at least three years from the date you filed your original return, but it doesn't hurt to keep a copy of your actual tax returns, W-2s, and 1099s indefinitely. You or your heirs might need information from the returns at some point, and you might eventually have to prove your earnings for Social Security purposes.

You should keep records for three years from the date you filed your original return or for two years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.

The IRS can extend the look-back period up to six years in certain cases if you're audited. Having a lengthy and accurate paper trail can prove vital if you're subjected to an in-depth audit of your prior years' tax filings.

Frequently Asked Questions (FAQs)

What is the best way to store your financial records?

Storing your files digitally is the safest and most convenient way to store (and retrieve) most of your financial documents and records. For key documents such as mortgage loan agreements or estate plans consider investing in a fire- and water-proof safe, or storing them away from home, in a safe deposit box

How long should I keep tax records and receipts?

In general you should keep supporting documents for your tax returns for three years after filing. The IRS notes a few situations when you should keep your supporting information longer:

  • Keep records for seven years if you file a claim for a loss from worthless securities or bad debt deduction.
  • Keep records for six years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
  • Keep records indefinitely if you do not file a return.
  • Keep records indefinitely if you file a fraudulent return.
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  1. IRS. "How Long Should I Keep Records?"

  2. IRS. "IRS Audits."

  3. The Principal. "Should You Digitize Your Financial Documents?"

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