What does a homeowner, business owner, and a college student all have in common?
The fear of a tax audit. “For people earning less than 100,000 USD each year and small businesses, the chances of being audited are less than one-half of 1 percent,” states Brendan McGuigan. Auditors look for inconsistencies in income taxes such as; social security numbers, or numbers that don’t add up. Small business owners expensing meals, entertainment, or vehicles are also at greater risk for an audit. Just by double-checking your tax preparation for clerical errors can dramatically reduce your risk of being audited, but know that all audits are chosen at random by the IRS and that the best way to reduce the headache of an audit is to be organized and prepared.
There are several different ways to prepare for an audit, but the best way is to keep only what is necessary and shredding everything else. Anyone going through an audit can tell you that they are spending a lot of time searching for the requested documents. Maintaining organization is an upfront investment of time, avoiding the inevitable waste of time searching for items when disorganized.
How much is too much?
Most people tend to keep too much for fear of an auditor demanding documents they’ve discarded, however the IRS has outlined precise guidelines of what they require you to keep. These guidelines are specific to whether you are filing personal or business taxes. These requirements can be viewed online at www.irs.gov. Here are a few tips for retaining adequate documents from your income taxes year to year.
You must keep all filed tax returns and all supporting documents for:
3 years unless you owe additional tax if:
You do not report income that you should report and it is more than 25 percent if the gross income shown on your return. Then keep 6 years.
You file a fraudulent return. Then keep records indefinitely.
You do not file a return. Then keep records indefinitely.
3 years from the date you filed your return or 2 years from the date you paid the tax, whichever is later.
7 years if you claim a loss from worthless securities or bad debt deductions.
The general rule of thumb for retaining other household documents is pretty simple. Keep all documents with policy information until the policy expires or a new copy of the current policy arrives. This applies to most insurance policies. Keep only the most current utility bill until the payment has been cleared. If you utilize online services, nowadays most all statements are available “paperless” or online. By taking the time to implement this option on all applicable accounts your home office can literally be clutter-free of papers … now the other stuff, that is for another time.
Please know that as a professional organizer I am here to coach you on how to maintain your documents. In my research, though, I have found that discovering a document retention schedule online is virtually improbable. Most accountants create their own household document retention schedule, though the majority of the general public doesn’t have an account on retainer. So for the rest of us, we have little to go by. For specific accounting advice please consult a certified public accountant.
For more information on how to maintain your retained documents and what documents to keep, register the Document Retention Workshop from 6:30 to 8 p.m. Wednesday in Room 130 at Falls High School. This workshop is provided through the Community Education department. To register, contact Rachel Amdahl at 283-2571.
Bergstrom, of Littlefork, is a professional organizer and consultant.
