TIPS FOR BOOKKEEPING Tax records should be kept year-round, not hastily assembled just for your annual tax appointment.  But which records are important, and how and why do you keep them? Without tax records, you can lose valuable deductions by fogretting to list expenses on your return or having unsubstantiated items disallowed if you're audited. Generally, returns can be audited up to three years after filing.  However, if income is unreported by more than 25%, the Internal Revenue Service can collect underpaid taxes up to six years later.  In other words, you need good records to verify what you report on your tax returns. Another money-saver:  If your records are organized, your accountant will need less time to review your records.  This may translate to lower tax preparation fees.     Which records are important? Records of income received Expense items, especially work-related expenses Home improvements, sales, and refinances Investment purchases and sales information The estate value of inherited property Specific uses of loan proceeds Medical expenses Charitable contributions Interest and taxes paid Records on nondeductible IRA contributions How should you keep your tax records?  Any way that is convenient for you that will allow you to give complete information on each item:  how much?  what for?  when?  where?  why?

HOW LONG SHOULD RECORDS BE KEPT? Just how long should you keep records is partly a matter of judgment and a combination of state and federal statutes of limitations.  Federal returns can be audited for up to three years after filing (six years if underreported income is involved), so all records substantiating tax deductions should be kept at least that long. Here are the recommended retention periods for various records: Cancelled checks - 7 years Credit card receipts - 7 years Paid invoices - 7 years Bank deposit slips - 7 years Bank statements - 7 years Tax returns (uncomplicated ) - 7 years Tax returns (all others) - Permanent Employment tax returns - 7 years Expense records - 7 years Financial statements - Permanent Contracts - Permanent Minutes of meetings - Life of company plus 7 years Corporate tax records - Permanent Employee records - Period of employment plus 7 years Depreciation schedules - Life of assets plus 7 years Real estate records - Ownership period plus 7 years Journal and general ledger - Life of business plus 7 years Inventory records - 7 years Home purhcase and improvement records - Ownership period plus 7 years Investment records - Ownership period plus 7 years. Requirement for computer-maintained records are generally the same as for manually kept records.