Recordkeeping for Tax Purposes

Personal Finance March 19, 2008 Print Friendly and PDF

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For further information on recordkeeping, please view Legally Secure Your Financial Future: Organize. You can find many tax related questions in publication on the IRS web site:


Recordkeeping for Tax Purposes Chat Session Transcript

NOTE: This transcript is from an online, live chat. The major topics have been captured in the material below. If you have further questions, please search eXtension for more in-depth and detailed information.

Chat Session Information

Topic: Recordkeeping for Tax Purposes
Chat Date: January 30, 2008

Extension Participants: North Dakota State University- Sharon Kickertz-Gerbig; Ohio State University- Christine Olinsky; Purdue University-Genie Huey and Elizabeth Kiss; Rutgers University-Barbara O’Neill; South Dakota State University- Sally Park Hageman; University of Idaho- Marsha Lockard and Karen Richel; University of Illinois-Rosemary Gibbons; University of Missouri- Rebecca Travnichek; University of New Hampshire- Katherine Fredette and Marilyn Sullivan; Utah State University-Jolene Johnson

Chat Transcript

QUESTION: What kinds of records are needed to report capital gains on mutual funds?
ANSWER: Keep copies of your mutual fund statements that list purchases, sales, dividends and capital gains.
RESPONSE from questioner #1: My husband sold some shares in 2007 and the mutual fund company actually calculated the average cost basis of his shares and the taxable amount, which was nice.
ANSWER: Many mutual fund companies provide a year-end statement. That's a big help with tax recordkeeping.
RESPONSE from questioner #1: It sure was. The statement indicated exactly how much the gain was on his sale. Otherwise, I'm not sure what we would have done (we do our own taxes). Calculating the tax basis of investments can be very difficult without services like this.

QUESTION: Would you recommend that people keep their year end mutual fund statements indefinitely, but toss out the monthly statements at the end of the year?
ANSWER: Yes, a year-end statement that recaps investment purchases, sales, stock splits and dividends should be kept indefinitely.
RESPONSE from questioner #1: I always feed my crosscut shredder my quarterly statements once the annual summary arrives...cuts down on paperwork because everything is summarized in one place.
COMMENT: Identity thieves can profit from old records that are discarded if not shredded or burned.

QUESTION: For families who have lost their homes due to fire/flood etc. - what are good sources of information they can use when reconstructing what they need for tax reporting?
ANSWER: A household inventory that you've stored in a safe place is a good start. If this isn't available, IRS Publication 584 includes a workbook that will be helpful in creating a record for tax purposes. The IRS may provide copies or transcripts of previously filed returns, free of charge. IRS Tax Topic 515 contains information about Casualty, Disaster, and Theft Losses

QUESTION: If an area has been designated a federal disaster area due to an ice storm, are homeowners able to claim expenses incurred in tree removal, etc. and what type of records do they need to keep?
ANSWER: You will want to consult the IRS pub 547 for information as to deductability. You will need to have the receipts/actual records to support deductions. You will need the Federal tax disaster declaration as well.

QUESTION: You have noted several really good IRS publications...are there some specific publications we should just have in our library?
ANSWER: IRS Publication 552 called “Record Keeping” covers a number of areas relating to record keeping. IRS Publication 17 is great to have handy, as well. For more specific information go to the IRS website; all pubs can be downloaded from the site.
COMMENT: I have actually used the Publication 17 many times and it is a great help.

QUESTION: What kind of records should you keep for tax-deductible business mileage? A calendar? Copies of your mileage reimbursement forms for work?
ANSWER: All are good sources - you need only keep an accurate diary of your mileage. I keep mine in my planner and use my forms from work.

QUESTION: Will the IRS accept just a written dIary as acceptable records, or if audited, is it important to have all the receipts?
ANSWER: Official receipts are preferrable but for mileage records, you won’t have a receipt. Instead, you should list odometer readings to claim mileage. Mark your vehicle’s odometer reading in a diary, notebook or planner. Then transfer it to a mileage report form. You can only claim the difference between what your employer may reimburse you for mileage and the IRS rate for that year.
COMMENT: I do something similar to you. My employer only reimburses 31 cents a mile and the IRS allows 50.5 cents for business mileage in 2008, 48.5 cents in 2007...a big difference that is tax deductible. I had almost $800 of mileage deductions this year due to my low reimbursement rate at work. It adds up.
ANSWER: Keep odometer records if you wish to claim charitable, moving or medical mileage expenses. Allowable medical or moving mileage in 2007 is 20 cents per mile driven for medical or moving purposes; and 14 cents per mile driven in service to a charitable organization. In 2008 the standard mileage allowed for medical or moving purposes is 19 cents per mile driven. The rate for service to a charitable organization remains at 14 cents per mile. However, our topic today is tax recordkeeping, not tax laws!
COMMENT: We are caregiving for my in-laws. According to our tax preparer, we cannot "claim" the mileage for any of their medical trips as my in-laws are not listed as dependents on our tax forms.

QUESTION: Do you have the records needed to do your own taxes?
RESPONSE: I'm still waiting for my W-2 from my employer...should be arriving at home today. Then I'm good to go. I actually enjoy doing taxes. It's like piecing a quilt together. I get it done by February 15 and have my refund direct-deposited by March. I guess I'm in the minority. Most folks use paid preparers.
2nd RESPONSE: I choose not to do my own taxes. My husband has had an LLC and it was better for us to make sure we had everything under control by having someone do the taxes for us. I'll take it over again some day but am satisfied paying for the service right now.
3rd RESPONSE: I prepare all the information and take it to a tax preparer. Sometimes I think it would be time to start doing it all, but we are also involved in a partnership operation, and I am not ready to tackle that yet.
ANSWER: The best way to tackle any tax problem is to look first at your last year's return. Many of the same things will be true. Look for the new tax law changes at the beginning of each form you use.

QUESTION: I’m curious, has anyone had a client use the TaxWise program? Just wondering how user-friendly it is. Personally, we use Turbo Tax and have found that to be fast, efficient, and user- friendly.
ANSWER: We are embarking on the use of TaxWise at SDSU – students will do the returns for their peers but we have not started receiving clients.

QUESTION: Has anyone ever taken one of the H & R Block tax classes? Was it helpful in your work now?
ANSWER: No, but I took a VITA training class about 10 years ago. It was helpful but only covered basic returns...nothing complicated.

QUESTION: Has anyone ever been audited and found that good records kept them from paying more tax?
1st RESPONSE: I recently helped an elderly couple who was not required to file because of income level. When the IRS contacted them for an audit, they had kept all the necessary records and were able to prove that no tax was due. The audit was for 2000 and 2001.
2ND RESPONSE: We were audited in 1989 because we had to buy hay from another state due to our statewide drought in 1988. The tranportation expense was high, and we had all the receipts that showed we did not do well financially to buy hay from so far away, but it was as close as we could get. Because we had the receipts and our preparer also attended the audit, we actually ended up getting a higher refund. I don't remember all the details and amounts, but sure was glad when that day was done.
COMMENT: That's great. I think people like to hear "success stories" like this in makes keeping good tax records seem worthwhile.

QUESTION: I'm working with a group of correctional diversion child support tax deductible? Does anyone know off the top their head?
ANSWER: That answer can be found in Publication 504: Separated and Divorced Individuals. Child support is never deductible by the payor nor taxable...but alimony can be deductible by the payor.
QUESTION: Would the receiver of child support then not have to declare that as income as well?
ANSWER: No, the receiver would not have to declare child support as income, but would have to declare alimony received as income. If you are divorced or separated, you may be able to deduct the alimony or separate maintenance payments that you are required to make to your spouse or former spouse. This reinforces the need for good records if someone receives both forms of support from an ex-spouse.
COMMENT: Thanks, that's interesting... the child support would be taxed twice.
ANSWER: No, child support is not taxable to the recipient, nor is it deductible to the payor.

QUESTION: Here is one last tax question-what is the cut off point for not having to file a tax return?
ANSWER: Do you mean for people with income below the filing requirement? Income limits are listed by filing status and age, and are subject to change each year. For instance, in 2007 a single taxpayer under age 65 generally would not have to file if gross earnings were under $8,750; if a single taxpayer is age 65 or olderr he or she would not have to file unless earnings were under $10,050. If married filing jointly, ages of both spouses are taken into consideration – if both are under age 65, the income would be less than $17,500; if one spouse is 65 or older, the income would have to be less than $18,550. If both spouses are age 65 or older, the gross income would be under $19,600 for 2007. There are circumstances that may require low-income individuals to file returns, such as if they are eligible for and wish to claim the Earned Income Credit, or had federal taxes withheld from wages or pension and wish to get a refund. A VITA tax preparation site can help low-income individuals determine if they must file a tax return. Note: However, the focus of this chat is tax recordkeeping rather than specific tax filing questions!

Panel of Experts for the Recordkeeping for Tax Purposes Chat Session

Marilyn Bischoff, University of Idaho

Marilyn Bischoff, University of Idaho, Extension Family Economics Specialist
Marilyn has more than 25 years of Extension experience as a county extension educator and state specialist. She earned her bachelor’s degree at Drexel University and her masters at the University of Idaho (UI). Marilyn coordinates a team of Idaho Extension educators who provide comprehensive Personal Finance education to the state’s residents. She led the development of two UI personal finance curriculums: Dollar Decision$ and Credit Cents: Making Sense of Credit, Debt, and Identity Theft. Marilyn coordinated a multi-state team that developed Legally Secure Your Financial Future: Organize, Communicate, Prepare (, a three-lesson curriculum with materials for educators to teach estate planning in face-to-face seminars. At the request of USDA-CREES Financial Security for All leadership, she guided the team who adapted LSYFF for eXtension.

Liz Gorham, South Dakota State University

Elizabeth Gorham, Ph.D., South Dakota State University, Extension Family Resource Management Specialist
Elizabeth Gorham, a native of Iowa, is currently employed as an Associate Professor at South Dakota State University in Extension. She received her bachelor’s degree from Iowa State University, her master’s from Utah State University, and her Ph.D. from Oregon State University. She spent several years in youth and family resource management programming in Utah before transferring closer to home to care for her aging parents. Liz has been active in the eXtension Financial Security for All Community of Practice, serving as a co-author of the Legally Secure Your Financial Future teaching and eXtension curriculums, and the upcoming eXtension Bankruptcy and the soon-to-be- developed Caregiver curriculums.

Cheri Hardison, Iowa State University

Cheri Hardison, Iowa State University, Extension Education Director for Monona County
Cheri has 30 Years of service with ISU Extension in Monona County in 4-H & Youth Development, Families, and Administration. She works with all Extension program areas including agriculture, families, youth, communities, continuing education and business and industry. Cheri works widely in the county and in Iowa to draw on local residents to form work groups for needs assessment and program planning and implementation. Cheri develops and implements leadership development programs for youth and adults. In 2006 she joined the Legally Secure Your Financial Future eXtension curriculum development team, and is a co-author of the Organize Your Important Papers learning lesson.

Beverly Healy, University of Idaho

Beverly Healy, University of Idaho, Extension County Chair and Educator for Ada County
Beverly, a native of Idaho, has served as University of Idaho Extension Educator for over 35 years. Her areas of expertise are family resource management and food safety. She received her Bachelor’s degree at Idaho State University and her master’s degree at Northwest Nazarene University. She holds the Accredited Financial Counselor (AFC) credential and is working on a Ph.D. in Adult and Organizational Learning at the University of Idaho. She coordinates a financial literacy coalition which offers Long Term Care and Legally Secure Your Financial Future workshops in SouthWest Idaho. Beverly has been active in the eXtension Financial Security for All Community of Practice and is co-author of the Legally Secure Your Financial Future curriculums and website.

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