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This article is about something that we are all guilty of in some way or at some time, not-so-good record keeping.
When I was a “young’un”, back in the day, my bookkeeping skills were not up to par. Let’s just say it plainly, they were horrible. It wasn’t until later in life that I started to keep more detailed bookkeeping and a balanced checkbook. I know Gen X and earlier will know what I mean. So, when it comes to taxes, whether you are doing them or someone else is, record keeping is the most important thing you can do. While the second, is staying tax compliant.
Record keeping isn’t just for businesses. It is also for individuals, as it allows you to validate any deductions you take on tax forms, or any income you receive so that it is taxed appropriately. Tax forms change every year, sometimes in a small sense while other times in a large way. Some deductions are for everyone, while others depend on certain criteria to be met. Your record keeping helps to validate why you can take that deduction.
Since Covid, and a new administration, the forms have taken on a greater change and meaning. It is important, now more than ever, that you take stock in all you have and deduct. If you have digital assets, you might need to check the mail for the new 1099-DA. If you are self-employed or are a contractor, make sure you have the correct 1099-NEC or MISC to bring to your tax preparer.
Deductions are the star of this article as good record keeping allows you to keep a “paper trail” of legitimate deductions. Anyone can be selected for audit or receive a letter from the IRS requesting proof of a deduction taken. Yet, without proof for the deduction, it can be denied and you would have to pay for any penalties, fees and additional tax owed. This is where good record keeping plays the most important part in your finances. With good record keeping, there is very little room for mistakes therefore protecting you from a need to amend your tax return due to an overlooked tax form. Protecting you during audits when the IRS wants proof that you can take that deduction. Also, by keeping good records, your tax preparer may be able to find deductions you weren’t even aware of.
