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Good Recordkeeping

Right after the holidays, get an early start on your tax return filing. Maintaining good records can make filing your tax returns easier, and this will help you not miss any transactions you made during the year. Here are a few steps for good recordkeeping.

• Keep any and all documents that may have an impact on your tax returns, leading to more legitimate deductions and less tax liability.


• Keep records in a safe place.  You may like to organize them by year and type of income or expense, or keep all records related to a particular item in a designated envelope.Keeping organized records ensures you can answer questions if your return is selected for examination, or prepare a response if you receive a notice.

• You should normally keep records relating to property for at least three years after you sell or otherwise dispose of the property.

• If you are a small business owner, you have to keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Examples of important documents a business owner must keep include:

Gross receipts: Cash register tapes, bank deposits slips, receipts books, invoices, credit card charge slips, and Form 1099-MISC. Proof of purchases:Cancelled checks, cash register tape receipts, credit card sales slips, and invoices.

Expense documents: Canceled checks, cash register tapes, accounting statements, credit card sales slips, invoices, and petty cash slips for small payments.

Documents to verify your assets: Purchase and sales invoices, real estate closing statements, and canceled checks.

Keep all the documents in a folder and Label “2011-Tax Return Filing.”

Organize Tax Documents as You Receive Them

Save all documents you receive in the mail or directly from your employers as they contain information that you will need for tax return preparation. Take a moment to review each document as it comes in so that your tax preparer can correct discrepancies well before he or she starts preparing your return. If there is a mistake, getting a corrected W-2 or 1099 form can take time, so don’t wait until the last minute. Typical forms may include:

• W-2s from your employers
• 1099-MISC forms for self-employed income
• 1099-INT (interest) and 1099-DIV (dividend) forms
• 1099-G tax refunds and unemployment compensation
• 1099-B forms showing brokerage trades in stocks and bonds, along with statements showing when you bought and sold your investments
• K-1 income and deductions from partnership, S corporations, trusts, and estates
• 1099-SA form showing Social Security received
• 1099-R distributions from pensions, annuities, retirement or profit-sharing plans, IRAs, insurance contracts, etc.
• Proof of jury duty pay
• Proof of alimony you received
• Records of income and expenses for your rental property
• Records of income and expenses for your self-employment
• Scholarships and fellowships
• Prizes and awards
• Gambling and lottery winnings

Itemize Deductions

To get all the possible legitimate deductions, go through all your checkbooks, credit card statements, and receipts for cash purchases. Itemize expenses into medical, union dues, mortgage interest, real estate taxes, charitable donations, unreimbursed work related expenses, personal property taxes (i.e. DMV license fees), and any other expense which might be applicable in your case. These documents may include:

• Health care expenses (doctors, dentists, health insurance, eye care, medicine)
• Real estate taxes
• Motor vehicle registration (DMV license fee)
• Mortgage interest paid (1098)
• Home equity loan interest
• Gifts to charities and churches (monetary and other)
• Last year’s tax preparation fees
• Unreimbursed job related expenses (union dues, job education, uniforms)
• Loss of property due to casualty or theft
• Gambling losses
• Contributions to your traditional or SEP-IRA
• Moving expenses
• College expenses (Student loan interest 1098-E)
• Daycare, childcare, or adult daycare costs
• Rental property expenses
• Alimony paid
• Adoption expenses
• Job-hunting expenses
• Investment expenses
• Unreimbursed business or volunteer work expenses If you paid estimated taxes, bring a summary of your federal and state estimated payments and canceled checks.  Other documents that may be helpful are:
• HUD-1 escrow statement for property you bought or sold
• Summary of educational expenses (college tuition)
• IRA contributions (traditional, SEP, or rollovers)

Schedule Your Tax Appointments Early

Try to schedule your tax appointment as soon as you get most of the documents in the mail. Afterward, you may need to chase down missing records or resolve other problems before the April 15 filing deadline.

The information contained in this article is of a general nature. Please consult your tax attorney  or finance professional for details.

Khorshed Alam is a practicing CPA and business valuation analyst. Check out or call (408) 445-1120.