Recordkeeping for Individuals
By: Connie Holt, E.A.
The Henssler Financial Group Position Paper

If you are in an organization mode, gathering information for last year's taxes or planning for the current year's taxes, it's time to think about the records you need to keep. Fortunately, the IRS does not require you to keep your records in a particular way, but there are many documents in addition to the return that should be saved.

Basic Records

These are records that everybody should keep that prove your income and deductions claimed on your tax return.

In addition, records for your home and investments should be saved to determine your basis (original costs plus adjustments) at the time you sell the asset.

Home

Records for your home should enable you to determine the basis of your home. You will need the basis to determine if you have a gain or loss when you sell your home or to figure depreciation, if you use part of your home for business purposes or rental property. The records should show the purchase price, closing costs, cost of improvements, and may show information for casualty losses deducted.

Investments

Records for your investments should enable you to determine your basis in an investment and your gain or loss at the time of sale or redemption (for mutual funds). The records should include the purchase price, purchase date, sales price, and commissions. Records may also include reinvested dividends, stock splits and dividends, load charges, and original issue discount.

The purchase date is important because it determines whether the gain or loss from the sale of the investment is treated as a long-term or short-term capital gain. Remember, long-term gains are taxed at a maximum of 15% (except for depreciation recapture and collectibles); short-term gains are taxed as ordinary income.

Stock split information is important because it changes your basis in the investment. For example, you buy 100 shares of ABC stock for $50 per share. Your total basis is $5,000. There is a 2-for-1 split of the stock. Your basis is still $5,000; however, you now own 200 shares with a basis of $25 each ($5,000/200 shares) versus the original purchase price of $50 each.

Specific Records

Specific records are required for many items in addition to your basic records.

Business Use of Your Home

If you use a portion of your home to conduct your principal business, you may be able to deduct certain expenses. Your records should show that part of your home is used for business and the related expenses. For more information, see IRS Publication 587 at www.irs.gov.

Charitable Contributions

The record keeping requirements vary with the type of contribution made.

Cash contributions

For each contribution, you should keep one of the following:

• A canceled check or financial account statement
• A receipt from the organization showing the organization's name, the amount, and date of the contribution, or
• Other reliable written records

Contributions of $250 or more

You must have written acknowledgment from the organization.

Non-Cash Contributions

• A dated written acknowledgement including a detailed description of donations and a fair estimated value of donated items
• It is not a bad idea to take a group picture of the items you donate. It is always better to have more documentation than not enough when the IRS questions your donations.
• Please remember that any donated items must be in good used or new condition.

Below are links to some tools you can use to help assign fair market value to frequently donated items:

• Salvation Army Donation Guide
• Goodwill Donation Guide

Employee Business Expenses

You generally must have documentary evidence, such as receipts, canceled checks or bills, to support your expenses. Documentary evidence is not needed if any of the following apply:

• You have meals or lodging expenses while traveling away from home that you account to your employer under an accountable plan,
• Your expense, other than lodging, is less than $75
• You have a transportation expense for which a receipt is not readily available.

Adequate evidence should include the amount, date, place and essential character of the expense. A canceled check, with a bill or invoice ordinarily establishes the cost, however a canceled check by itself does not prove a business expense without other evidence to show the business purpose of the expense.

Mortgage Interest

If you paid mortgage interest of $600 or more, you should receive Form 1098. Keep this form with your mortgage statement and loan information in your records.

Individual Retirement Arrangements

The following records should be kept until all distributions are made from your IRA(s).

• Form 5498 or similar statement(s) for each year showing contributions, distributions, and the value of your IRA
• Form 1099-R received each year you receive a distribution
• Form 8606 for each year you made a nondeductible contribution to your IRA For additional information on specific records you should keep, see IRS Publication 552 at www.irs.gov.

How Long to Keep Your Records

The general rule is you should keep your records for the period of limitations, or the period of time the IRS can assess additional tax. The Henssler Financial Group recommends you retain your returns and records for a minimum of seven years. However, if a taxpayer files a fraudulent return or does not file, the period of limitations is unlimited.

Computerized Records

There are many software packages available to assist you with record keeping. These packages are relatively simple to use. The Henssler Financial Group can assist you with the initial set-up and provide future support for individuals or businesses. We have a certified QuickBooks expert that can assist you with customizing reports that suit your needs. For additional information, contact us at 770-428-4025.