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Packrats Beware
By Robert Spence, Resident of Westchase |
There's an old saying: the devil's in the details. Many people with
carefully constructed financial plans have watched their plans come
unraveled because they fail to keep the records they need to meet
Internal Revenue Service (IRS) rules.
Good record keeping may be as appealing as visiting the dentist, but
organizing your records systematically and early will save time and
energy as well as aggravation. Adopting investment and tax strategies
within your financial plan can ultimately prove futile if you are unable
to document and substantiate your methods to the IRS.
Good sense advocates holding onto records the IRS deems important and
discarding those that no longer are necessary. Unfortunately, the IRS
offers very few specifics. They instead insist on "sufficient
documentation" and a policy of "adequacy and accuracy." They do,
however, strongly advise you to hold onto W-2 forms, 1099 forms, stock
brokerage statements and tax returns from prior years. IRS guidelines
generally correspond to the statute of limitations for return filing.
Assuming legitimate returns are filed, these records should therefore be
kept for at least three years from the date the return is filed.
Well-organized records may allow you to maximize your miscellaneous
deductions (which includes fees for tax advice, investment management
and employee business expenses) and exceed the two percent of adjusted
gross income floor for miscellaneous deductions. Aside from helping you
to recall and itemize these deductions, keeping receipts, canceled
checks and other records may be necessary to both verify those items
reported and address any IRS skepticism. Other records you should keep
include receipts for all medical and dental expenses, canceled checks,
insurance reimbursements, direct payments and premium payments records.
Logs for business use of a car, home computer and certain other business
tools are also important.
Copies of state and local tax returns, real estate tax statements, and
canceled checks paying those taxes should be kept if a deduction for
these taxes is taken. With the stricter reporting requirements and
documentation necessary for charitable contributions (the law now
requires a special receipt from a charity for gifts over $250), it is
also necessary to retain receipts as well as descriptions of non-cash
property donated to charities. For the home mortgage interest deduction,
bank statements, bank notes and canceled checks should be retained.
Other significant records to be held onto include partnership, trust and
S Corporation Schedule K-1s, records of transactions by your account
executive, and closing statements from the sale of your home.
Keeping good records will help your tax preparer and your financial
planner better serve your needs. It will also help you save money and
meet your financial goals. Stuffing everything in a shoebox is tempting.
But, remember, the details are in that box and that's where the devil
can be found.
Spence is a certified financial planner with Legacy Wealth Advisors (www.legacywealthadvisor.com),
a registered investment advisor with securities offered through Raymond
James Financial Services.
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