Tax Tips
Record Retention Guide
Efile 411 has compiled a list of the most common tax and financial records that a business or an individual may need to keep and guidelines for how long the records should be retained.
The information contained in this site is of a general nature and may not be applicable to you. For information on your specific situation contact us.
Individuals
Keep One Year
While it's important to keep year-end mutual fund and IRA contribution statements forever, you don't have to save monthly and quarterly statements once the year-end statement has arrived.
Keep Three Years
- Credit Card Statements
- Medical Bills (in case of insurance disputes)
- Utility Records
- Expired Insurance Policies
Keep Six Years
- Supporting Documents For Tax Returns
- Accident Reports and Claims
- Medical Bills (if tax-related)
- Property Records / Improvement Receipts
- Sales Receipts
- Wage Garnishments
- Other Tax-Related Bills
Keep Permanently
- CPA Audit Reports
- Legal Records
- Important Correspondence
- Income Tax Returns
- Income Tax Payment Checks
- Investment Trade Confirmations
- Retirement and Pension Records
Special Circumstances
- Car Records (keep until the car is sold)
- Credit Card Receipts (keep until verified on your statement)
- Insurance Policies (keep for the life of the policy)
- Mortgages / Deeds / Leases (keep 6 years beyond the agreement)
- Pay Stubs (keep until reconciled with your W-2)
- Property Records / improvement receipts (keep until property sold)
- Sales Receipts (keep for life of the warranty)
- Stock and Bond Records (keep for 6 years beyond selling)
- Warranties and Instructions (keep for the life of the product)
- Other Bills (keep until payment is verified on the next bill)
- Depreciation Schedules and Other Capital Asset Records (keep for 3 years after the tax life of the asset)
Businesses
Keep One Year
- Bank reconciliations
- Correspondence with customers or vendors
- Duplicate deposit slips
- Purchase orders (except purchasing deparment copies)
- Receiving sheets
- Requisitions
- Stenographer's notebooks
- Stockroom withdrawal forms
Keep Three Years
- General correspondence
- Employee personnel records (after termination)
- Employment applications
- Expired insurance policies
- Internal audit reports
- Internal reports
- Petty cash vouchers
- Physical inventory tags
- Savings bond registration records of employees
Keep Seven Years
- Accident reports and claims
- Accounts payable ledgers and schedules
- Accounts receivable ledgers and schedules
- Cancelled checks
- Expired contracts and leases
- Expense analysis and expense distribution schedules
- Inventories of products, materials and supplies
- Invoices to customers
- Notes receivable ledgers and schedules
- Expired option records
- Payroll records and summaries, including payments to pensioners
- Plant cost ledgers
- Purchasing department copies of purchase orders
- Sales records
- Cancelled stock and bond certificates
- Subsidiary ledgers
- Time books
- Voucher register and schedules
- Voucher for payments to vendors, employees, etc.
Keep Permanently
- Audit reports of accountants
- Cash books, charts of accounts
- Cancelled checks for important payments
- Contracts and leases still in effect
- Correspondence on legal and other important matters
- Deeds
- Mortgage and bills of sale
- Depreciation schedules
- Financial statements (end-of-year)
- General ledgers (and end-of-year trial balances)
- Insurance records, current accident reports, claims, policies
- Journals
- Minute books of directors and stockholders
- Property appraisals by outside appraisers
- Property records
- Tax returns and worksheets, revenue agents' reports and other documents relating to determination of income tax liability
- Trademark registrations
5 Facts about the Making Work Pay Tax Credit
Working taxpayers may be eligible for the Making Work Pay tax credit, a significant provision of the American Recovery and Reinvestment Act of 2009. This credit means more take-home pay for millions of American workers. Five things you should know:
1. Available for 2009 and 2010, the credit equals 6.2 percent of a taxpayer’s earned income. The maximum credit is $800 for married filing joint and $400 for other taxpayers. Most wage earners have been enjoying a boost in their paychecks from this credit since April.
2. Eligible self-employed taxpayers can also get the credit, by adjusting their September and January estimated tax payments.
3. Any of the following should ensure enough tax is being withheld: married couples with two incomes, individuals with multiple jobs, dependents, pensioners, Social Security recipients who also work, and workers without valid Social Security numbers. Having too little tax withheld could result in a smaller tax refund or a balance due rather than an expected refund.
4. The Making Work Pay credit phases out beginning at $75,000 for single taxpayers and $150,000 for married filing joint.
E-Filing
E-filing is fast, and that's a terrific reason to e-file! But the most important reason is that when you e-file through EFile411.com, the program catches math and other common errors, letting you quickly make corrections and try again.
Make sure the last name of each individual claimed on your tax return is the official last name of the person. If you have any question or doubt as to the official last name of an individual you will be claiming on your return, verify the information with the Social Security Administration at (800) 772-1213.
E-Filing Benefits
o Accuracy - IRS studies show that e-filing greatly reduces errors on your return and the chances that you will receive a error notice from the IRS. Studies show the error rate of e-filed returns is reduced to 1%, versus 20% for paper returns.
o Security - privacy and security are guaranteed. You can choose a five-digit PIN as your electronic signature. The IRS keeps your information private.
o Proof of Acceptance - within 48 hours the IRS will send you an electronic acknowledgment that it accepted your tax return. If it did not accept your tax return, the IRS will send you a rejection notice that will show the errors it found on your tax return.
o Fast Refunds - receive your tax refund twice as fast as with a paper return.
Charitable Contributions
If you want to claim a charitable deduction, be sure the charity or philanthropic organization you select is a tax-qualified organization under IRS rules. Use GuideStar for Donors to research nonprofits' tax-exempt status.
Charitable purchases are only deductible in the amount exceeding the worth of the item purchased. For example, if you attend a fancy $500 a plate dinner for children's hospital, the deductible amount is equal to $500 minus the fair market value of the dinner.
Make sure you obtain a receipt for any and all of your charitable cash contributions – if you want to deduct them.
Additional Deduction for Real Estate Taxes
For 2008 and 2009 tax years, you can deduct state or local real estate taxes, even if you don’t itemize deductions. Here are the requirements for the additional tax deduction:
- The additional tax deduction is equal to the amount of real estate taxes paid. The maximum is $500 for single filers or $1,000 for joint filers.
- The taxes must be imposed on you.
- You must have paid the taxes during the tax year.
- The taxes must be charged uniformly against all property in the jurisdiction and must be based on the assessed value. Many states and counties also impose local benefit taxes for improvements to property, such as assessments for streets, sidewalks and sewer lines. These taxes usually cannot be deducted.
- Real estate taxes paid on foreign or business property do not qualify.
You must file Form 1040 or 1040A to claim the additional tax deduction.
American Opportunity Credit Helps Pay for the First Four Years of College
The American Opportunity Credit modifies the existing Hope Credit for 2009 and 2010, making it available to more taxpayers. Income guidelines are expanded and required course materials are added to the list of qualified expenses. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.
The American Opportunity Credit, in many cases, offers greater tax savings than existing education tax breaks:
- Tuition, fees, books and other required materials generally qualify. In the past, books usually were not eligible.
- The credit is equal to 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
- The full credit is available for individual taxpayers whose modified adjusted gross income is $80,000 or less ($160,000 or less for married filing joint). The credit begins to phase out for higher incomes. These limits are higher than under the existing Hope andLifetime Learning credits.
- Forty percent of the American Opportunity Credit is refundable, so even people who owe no tax can get up to $1,000 for each eligible student. Existing credits and deductions do not provide a benefit to people who owe no tax.
Eligible parents and students can get the benefit of this credit during the year by reducing their withholding with a new Form W-4, claiming additional withholding allowances.
Recovery Act Expanded 529 Plans
The American Recovery and Reinvestment Act (ARRA) included a provision that allows college savings plans and prepaid tuition programs to be used to buy computer equipment and services. These 529 plans are a way for families to save for a child’s college education. Qualified expenses are normally limited to tuition, fees, books, supplies, equipment and special needs services. For someone who is at least a half-time student, room and board also qualify.
For 2009 and 2010 only, the Recovery Act adds to this list computer technology and equipment or Internet access and related services. In general, expenses for computer technology do not qualify for the American Opportunity Credit, Hope Credit, Lifetime Learning Credit, or the tuition and fees deduction.
Errors on tax returns delay the processing of your return and often, your tax refund.
Avoid these common errors:
1. Incorrect Recovery Rebate Credit - The Recovery Rebate Credit is for people who did not receive a stimulus payment in 2008 or who did not receive all they were due. To avoid delays in tax refunds, taxpayers must know whether they received a payment in 2008 and the correct amount of that stimulus payment.
2. Incorrect or missing Social Security number - Enter exactly as it is on the Social Security card.
3. Incorrect or misspelling of dependent’s last name - Enter exactly as it appears on the Social Security card.
4. Filing status errors - Make sure you choose the correct filing status for your situation.
5. Math errors - Make sure all addition and subtraction is correct. Remember, when you file electronically, with efile411.com our tax software takes care of the math for you.
6. Computation errors - Take your time. Many taxpayers make mistakes when figuring taxable income, withholding and estimated tax payments, Earned Income Credit, Standard Deduction for age 65 or over or blind, the taxable amount of Social Security benefits, and child and dependent care credit.
7. Incorrect bank account numbers for Direct Deposit - Double-check any bank account numbers you provide.
8. Forgetting to sign and date the paper tax return - An unsigned tax return is like an unsigned check – it's invalid.
9. Incorrect Adjusted Gross Income information - If you e-file this year, and you also e-filed last year, you'll need to verify your identity to the IRS by providing your 2008 AGI or PIN.
Economic Recovery Payments – Non Taxable
Any economic recovery payment you receive during 2009 is not taxable. These $250 payments are being made to most people who:
- Receive social security benefits, supplemental security income (SSI), railroad retirement benefits, or veterans disability compensation or pension benefits, and
- Live in a U.S. state, the District of Columbia, Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, or the Northern Mariana Islands.
If you are married and you and your spouse both meet these requirements, each of you may get a $250 payment.
If you are entitled to a payment, you will get it automatically. You do not need to apply for it.
Last-Minute Filing Tips
With the tax filing deadline close at hand, the IRS offers these tips for those still working on their tax returns:
1. File electronically instead of using paper tax forms. If you file electronically and choose direct deposit, you can receive your tax refund in as few as 8 days.
2. Check the identification numbers. Carefully check the identification numbers — usually Social Security numbers — for each person on the return. Missing, incorrect or illegible Social Security Numbers can delay or reduce a tax refund.
3. Double-check your figures. If you are filing a paper return, you should double-check that you have correctly figured the refund or balance due.
4. Check the tax tables. If you are filing a paper return you should double-check that you have used the right figure from the tax table.
5. Sign your tax return. Taxpayers must sign and date their tax returns. Both spouses must sign a joint return, even if only one had income. Anyone paid to prepare a tax return must also sign it.
6. Mail to the correct address. Use the coded envelope included with your tax package to mail your return. If you did not receive an envelope, check the section called "Where Do You File?" in the tax instruction booklet.
7. Mail a payment correctly. Make any check out to “United States Treasury” and enclose it with, but don't attach it to, your return or Form 1040-V, Payment Voucher. Include your Social Security number, daytime phone number, the tax year and the type of form filed.
8. Consider an electronic payment. Electronic payments are a convenient, safe and secure way to pay taxes. You can authorize an electronic funds withdrawal, or use a credit card or a debit card.
9. Get an extension for your tax return. By April 15, you should either file a tax return or request an extension of time to file. Remember, the extension of time to file is not an extension of time to pay.
10. File electronically instead of using paper tax forms. If you file electronically and choose direct deposit, you can receive your tax refund in as few as 8 days.
11. Check the identification numbers. Carefully check the identification numbers — usually Social Security numbers — for each person on the tax return. Missing, incorrect or illegible Social Security Numbers can delay or reduce a tax refund.
12. Double-check your figures. If you are filing a paper tax return, you should double-check that you have correctly figured the tax refund or balance due.
13. Check the tax tables. If you are filing a paper tax return you should double-check that you have used the right figure from the tax table.
14. Sign your tax return. Taxpayers must sign and date their tax returns. Both spouses must sign a joint tax return, even if only one had income. Anyone paid to prepare a tax return must also sign it.
15. Mail to the correct address. Use the coded envelope included with your tax package to mail your return. If you did not receive an envelope, check the section called "Where Do You File?" in the tax instruction booklet.
16. Mail a payment correctly. Make any check out to “United States Treasury” and enclose it with, but don't attach it to, your return or Form 1040-V, Payment Voucher. Include your Social Security number, daytime phone number, the tax year and the type of form filed.
17. Consider an electronic payment. Electronic payments are a convenient, safe and secure way to pay taxes. You can authorize an electronic funds withdrawal, or use a credit card or a debit card.
18. Get an extension for your tax return. By April 15, you should either file a tax return or request an extension of time to file. Remember, the extension of time to file is not an extension of time to pay.
The information contained in this site is of a general nature and may not be applicable to you. For information on your specific situation see www.IRS.gov.