The April 18 deadline tofile taxesis rapidly approaching. For filers who itemize their deductions, operate small businesses, orare sole proprietors, gathering receipts is an important part of the preparation process for filing taxes, regardless of whether you file taxes online or use a paper return. Receipts and paperwork are critical to keep, in case you are eversubjected to an IRS audit.
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If you're going to itemize specific expenses and deductions when filing your taxes this year but haven't saved every single thing, you need to know which receipts you should prioritize having on hand. Find out exactly which receipts you should be saving and why -- and how to be well-prepared when you have taxes due.
Receipts you need for itemizing deductions
If you are an individual filer, you might be able to useitemized deductionsto receive a greater reduction in tax liability than if you use the standard deduction. Itemizing means you add up individual expenditures or donations throughout the tax year that can be subtracted from your adjusted gross income. Whether you do taxes online or not, you'll need to refer to receipts for filing federal and state taxes.
To gauge whether you should itemize your tax return, you need to know the standard deduction for your filing status on your 2015 tax return.If your total itemized expenses are less than the standard deduction, then you should take the standard deduction.
The standard deductions for 2015 are:
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- $6,300 for an individual filer
- $9,250 for a head of household
- $12,600 for married couples filing jointly or a qualifying widower
The goal in saving receipts is to have paperwork that proves the numbers in your forms for state and federal income taxes are correct. Here's a list of expenses you can itemize and receipts you should hold on to:
- Business use of your car and home:Keep receipts of household expenses, including mortgage, electric, gas, water, taxes, insurance, and repairs.
- Charitable donations:Whenever you donate an item -- whether it's clothing or a car -- ask for atax-deductible receiptortax receipt for donations, whichprovides an official record of your donation. An estimated value for the item must be included on the receipt.
- Child care expenses:If you have a child age 12 or under, and paid someone to care for him, take advantage of the child care credit and keep your receipts or paperwork for what you spent.
- College savings plans records:Keep records of savings accounts, including college savings plans. These kinds of savings plans are not tax-deductible, but if you have a 529 plan, your investment will growtax-deferred.
- Educational expenses:Hold on to receipts from tuition paid, books, supplies, lab fees, research expenses, and transportation and travel costs.
- Homeowner expenses:Keep receipts for expenses related to the home you own; this includes closing documents for buying a home, invoices for home improvements, and statements for property taxes paid.
- Job search expenses:If you were looking for employment at all in 2015, you probablyqualify for a number oftax deductionsfor your job search. Keep records of what you spent on things directly to your job search, including your resume, application costs, travel, and Internet fees.
- Local and stateincome taxes:Keep tax forms from years you want to claim.
- Medical and dental expenses:Keep track of prescriptions and medical bills paid, including co-pays, lab tests fees, and emergency room visits. Alternative therapy might qualify for a deduction since the IRS considers payments made to nontraditional medical practitioners as adeductible medical expense.
- Mortgage interest or taxes:Keep receipts from mortgage and tax payments made for your home throughout the year.
- Unreimbursed business travel and entertainment expenses:Hold on to receipts from food purchases for clients, as well as oil changes, repairs, gas, and mileage for business or work if you were not previously reimbursed.
Why you should always keep tax records
When organizing your receipts, especially as a business owner, the IRS recommends developing and maintaining a record-keeping system that clearly shows your income and expenses.It's also a good idea to keep track of dates and receipts of amounts paid if you often donate money or pay expenses for your job and would like to claim itemized deductions for taxes.
"Taxpayers should keep any and all receipts or invoices tied tohomeor business expenses throughout the year just in case they may help them during tax season," Townsend said.Keep track of transactions like purchases, sales, payroll and invoices, and hold on to supporting documents such as sales slips and store receipts, paid bills, deposit slips and canceled checks. Look out for tax forms and documents that arrive by mail in January and February, when most tax documents are sent out.
How long to keep tax records and receipts
To be on the safe side,always hold on to as many receipts as possible for a minimum of seven years.Often, businesses that claim losses and individuals who itemize are not required to provide receipts proving the numbers they've listed are correct -- but this is not a chance you want to take since theIRS canauditat any time.The rules around lost tax receipts are not totally clear. Kornblatt said her experience with lost receipts has been varied, with taxpayers who had meticulous records and receipts sometimes still having expenses disallowed during an audit.
If going through all your receipts is not part of your ideal solution to how to file taxes, you might need to employ professional help with your taxes. A tax professional can also help with more complicated situations, like figuring out payroll taxes, capital gains taxes, corporate taxes, gift taxes, real estate taxes, estate taxes, or taxes by state if your business makes sales throughout the U.S. Professional tax advice can also be useful if you need to pay back taxes or provide estimated taxes -- both of which are common situations for business owners.
This article originally appeared at GoBankingRates.
The article Which Tax Receipts Should I Be Saving to File Taxes? originally appeared on Fool.com.
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