Be prepared for an audit

Use this checklist to help your record keeping. At minimum, your records must include the following:

• A copy of your signed tax return and all supporting documents sent with your tax filing
• Copies of any worksheets that support your tax filing
• Canceled checks of deducted items
• Record of digital payment and timing if using electronic payment systems
• Receipts supporting deducted items
• Bank statements
• Investment statements
• W-2s
• Form 1099s (all form types)
• Form 1095s (to support having valid health insurance)
• Mortgage statements (including annual interest paid, 1098 tax forms)
• Business K-1 tax forms
• Credit card statements
• Copies of any major purchases or sales (example: home closing documentation)
• Mileage logs for business, charitable and medical transportation
• Proper documentation for business meals and cell phone use
• Receipts for any charitable donations (both cash and non-cash donations)
• Support for all your itemized deductions
• Child care receipts and reporting
• Educational expenses
• Substantiation for value of large donations of property
• Proof of fair market value for any inherited items of value

Capital improvements

Now is also a good time to review your capital improvement files. Capital improvements are money you spend to improve the value of your home, secondary residence, or other high-value property/equipment. These records are necessary to support your calculation of value and gain/loss when selling your property. Consider creating a spreadsheet that recaps each of these expenditures.

When to toss

Don’t toss old records too soon. The typical rule is to retain federal tax records for as long as they may be needed. This is usually the later of 3 years after the filing due date or when you actually file your tax return. But be careful, state rules can differ, and if your income is understated by more than 25%, the lookback for audit increases to six years. Finally, remember to keep records of fixed assets as long as you own them plus three years.

Contact our RRBB advisors if you have any questions or need further assistance.