Packrats Beware
Craig
Hackler, Financial Advisor,
Raymond
James
Financial
Services
There’s an old saying that “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 prove ultimately 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. Rather, they insist on “sufficient documentation” and a policy of “adequacy and accuracy.” However, they do “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. Thus, assuming legitimate returns are filed, these records should be kept for at least 3 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 2% 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 verify those items reported and answer IRS skepticism. Other records to be kept include receipts for all medical and dental expenses, canceled checks, insurance reimbursement, direct payment 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 these taxes should be kept if a deduction for these taxes is taken. With the stricter reporting requirements and documentation necessary for charitable contributions (that now includes a special receipt from the 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 would 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, save you money and help you 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. Your financial planner and tax advisor can help you get your records in order.
Craig Hackler holds the Series 7 and Series 63 Securities licenses, as well as the Group I Insurance license (life, health, annuities). Through Raymond James Financial Services, he offers complete financial planning and investment products tailored to the individual needs of his clients. He will gladly answer your questions. Call him at 512.894.0574 or 800.650.9517
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