(An article by Matthew Frankel, The Motley Fool September 29, 2015  USA Today)

One of the best ways to maximize your tax refund is to be proactive about your tax planning before the year comes to a close. We asked five of our writers (Motley Fool) what steps you can take in order to save some money on your 2015 taxes, and here is their advice.

Matt Frankel: One tax benefit to keep in mind that could be especially valuable this year is the ability to use any realized investment losses to offset your gains. For example, if you sold one of your stocks at a $2,000 profit and sold another at a $1,000 loss, only the $1,000 in net investment profit will be taxable as income.

There are some important details to know. For starters, you can claim investment losses even if your losses exceed your gains or you don’t have any gains at all. In this case, your taxable income can be reduced by the amount of your losses. In any given year, you can claim up to $3,000 worth of net investment losses, but any amount over $3,000 can be carried over to the following tax year.

Because of this ability to use investment losses as a tax deduction, many investors employ a strategy known as “tax-loss selling.” Basically, as the year comes to a close, it may be financially beneficial to sell losing positions in order to reap the benefits. So, if you have the misfortune (as I do) of some energy stocks dragging down your portfolio, it may be a good idea to take a long look at them and decide if the prospect of these stocks rebounding outweighs the tax benefits that would come from selling.

This can produce a substantial benefit — after all, a $2,000 investment loss can lower your federal tax liability (or boost your refund) by $500 if you’re in the 25% tax bracket. So, although it’s never fun when your investments lose, they can’t all be winners — so take advantage of the government’s effective subsidizing of your losses.

Selena Maranjian: There’s a big mistake that many investors make at the end of a year: buying into mutual funds just before those funds make their annual distribution of dividends and capital gains. It might seem smart to buy just before those payouts are made, but it’s not, because even though a fund might pay, say, $3 per share to its investors, the value of the shares drops by exactly that amount. So, you don’t really end up with a gain. Even worse, you are on the hook to be taxed for that payout — even though you may not have held the shares during the time they appreciated, creating the capital gain.

The smart move is to find out when, or if, the mutual fund will be making a significant distribution to shareholders — and to buy into the fund after that. These distributions often occur in December, and most major funds will publish the date of the distribution on their website. If you can’t find it, give the fund company a jingle and ask.

All this doesn’t hold for mutual funds held in tax-advantaged retirement accounts, such as 401(k)s, so don’t worry about those. It does hold for any distributions that you (wisely!) reinvest in extra shares. You might not collect any cash, but Uncle Sam will still tax you.

Sean Williams: Although it’s not exclusive to the end of the year, one smart tax tip that everyone should consider is adjusting their tax withholding status to match their taxable income.

Put plainly, Americans are addicted to receiving a refund from the IRS. In recent years, close to 80% of taxpayers wound up getting money back from the IRS (an average of roughly $2,800), which for many Americans is a way of forcing themselves to save money. However, allowing the federal government to hang onto money that you are due for extended periods of time (weeks or months) is actually bad news for you since that money earns no interest. What you’re really doing by not adjusting your tax withholding status is allowing the federal government to borrow money from you for free.

What should workers do instead? As we edge toward the end of the year, take the time to use a tax withholding calculator to gain a rough estimate of how much you might owe in taxes. Or, if you’re brave enough, consider making the calculations on your own by using the IRS’s federal tax tables to help calculate your tax liability. As a reminder, don’t forget your tax liability for Social Security or Medicare, especially if you’re self-employed.

Once you have a rough estimate of your federal tax liability you’ll be able to make the appropriate adjustments to minimize the amount you owe, and most importantly, minimize the amount of money the federal government is keeping without paying you a dime.

Dan Caplinger: In taking an early look at your taxes, it’s important to make sure you get the full benefit of any deductions you’re entitled to take. For many, that involves making year-end charitable gifts. To deduct those amounts, you need to make sure the gifts are done by Dec. 31.

If you’re planning to give cash or write a check, then waiting until the last minute isn’t that big of a problem. Where you can run into trouble, though, is if you take advantage of a useful strategy that involves giving away appreciated stock as a charitable gift. Ordinarily, if you sell stock that has gone up in value, you’ll owe tax on the capital gains. Yet if you give away that stock, you can deduct the full market value, and you won’t owe any tax because it’s the tax-exempt charity that ends up selling the stock after the gift.

The thing to keep in mind is that the process of making a charitable stock gift takes longer than a simple cash gift, so you should get the ball rolling well before the end of the year. By doing so, you can do good and give yourself some great tax savings in the process.

Jason Hall: One of the best tax-reducing tools at the disposal of many people is your employer-sponsored 401(k) or similar retirement plan. You can contribute as much as $18,000 of your salary (up to $24,000 if you’re 50 or over) in 2015, and if you contribute pre-tax contributions, then your taxable income would be reduced by the total amount of your contributions for the year.

In other words, if your tax rate is 25% this year, you’d reduce your federal income taxes by $4,500 this year by making the max $18,000 contribution. If you’re in the 50-and-over club and max out at $24,000, that’s worth $6,000 in tax savings at a 25% rate.

If you’re in the situation where you can benefit from increasing contributions over the next few months, you should be able to crank up your payroll contribution percentage for the rest of the year, and then back it down at the beginning of 2016. Some employers may also allow you to make one-off deductions to “catch up” for the year. Check with your human resources folks to find out if this is an option for you.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

The Internal Revenue Service issued a consumer alert providing taxpayers with additional tips to protect themselves from telephone scam artists calling and pretending to be with the IRS.

These callers may demand money or may say you have a refund due and try to trick you into sharing private information. These con artists can sound convincing when they call. They may know a lot about you, and they usually alter the caller ID to make it look like the IRS is calling. They use fake names and bogus IRS identification badge numbers. If you don’t answer, they often leave an “urgent” callback request.

“These telephone scams are being seen in every part of the country, and we urge people not to be deceived by these threatening phone calls,” IRS Commissioner John Koskinen said. “We have formal processes in place for people with tax issues. The IRS respects taxpayer rights, and these angry, shake-down calls are not how we do business.”

The IRS reminds people that they can know pretty easily when a supposed IRS caller is a fake. Here are five things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam. The IRS will never:

1. Call to demand immediate payment, nor will we call about taxes owed without first having mailed you a bill..
2. Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
3. Require you to use a specific payment method for your taxes, such as a prepaid debit card.
4. Ask for credit or debit card numbers over the phone.
5. Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:

• If you know you owe taxes or think you might owe, call the IRS at 1.800.829.1040. The IRS workers can help you with a payment issue.
• If you know you don’t owe taxes or have no reason to believe that you do, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1.800.366.4484 or at www.tigta.gov.
• You can file a complaint using the FTC Complaint Assistant; choose “Other” and then “Imposter Scams.” If the complaint involves someone impersonating the IRS, include the words “IRS Telephone Scam” in the notes.

Remember, too, the IRS does not use unsolicited email, text messages or any social media to discuss your personal tax issue. For more information on reporting tax scams, go to www.irs.gov  and type “scam” in the search box.

Contact us for more information on fraud.

Latest News

IRS working to implement new law; Reminds taxpayers to continue existing health coverage during interim period.

The Trade Preferences Extension Act of 2015 (Public Law 114-27), enacted June 29, 2015, extended and modified the expired Health Coverage Tax Credit. Previously, those eligible for HCTC could claim the credit against the premiums they paid for certain health insurance coverage through 2013. The HCTC can now be claimed for coverage through 2019.

The IRS is currently reviewing the legislation and is working with its partners, the Pension Benefit Guaranty Corporation and the Department of Labor State Workforce Agencies, to determine the best way for taxpayers to receive this important credit. The law is similar to the version of the credit that expired in 2013 but includes modifications that affect how the credit is administered. The IRS will provide guidance on the credit in the near future, including guidance for taxpayers who also qualify for the Premium Tax Credit under the Affordable Care Act.

In the meantime, the IRS offers the following guidance to anyone who may be eligible for the Health Coverage Tax Credit:

• Until the IRS provides further information and can confirm taxpayer eligibility for HCTC, taxpayers should not discontinue or change current health coverage, including COBRA or Health Insurance Marketplace coverage.
• The HCTC is retroactive for tax year 2014, meaning eligible taxpayers can claim it for 2014 by filing an amended return.
• More details will be available soon and taxpayers should wait for this information before they file an amended return.

Posted from IRS

Contact us for help on understanding your Health Coverage Tax Credit.

We all make mistakes so don’t panic if you made one on your tax return. You can file an amended return if you need to fix an error. You can also amend your tax return if you forgot to claim a tax credit or deduction. Here are ten tips from the IRS if you need to amend your federal tax return.

1. When to amend.  You should amend your tax return if you need to correct your filing status, the number of dependents you claimed, or your total income. You should also amend your return to claim tax deductions or tax credits that you did not claim when you filed your original return. The instructions for Form 1040X, Amended U.S. Individual Income Tax Return, list more reasons to amend a return.

   Note: If, as allowed by recent legislation, you plan to amend your tax year 2014 return to retroactively claim the Health Coverage Tax Credit, see IRS.Gov/HCTC first for more information.

2. When NOT to amend.  In some cases, you don’t need to amend your tax return. The IRS usually corrects math errors when processing your original return. If you didn’t include a required form or schedule, the IRS will send you a notice via U.S. mail about the missing item.
3. Form 1040X.  Use Form 1040X to amend a federal income tax return that you filed before. Make sure you check the box at the top of the form that shows which year you are amending. Since you can’t e-file an amended return, you’ll need to file your Form 1040X on paper and mail it to the IRS.

   Form 1040X has three columns. Column A shows amounts from the original return. Column B shows the net increase or decrease for the amounts you are changing. Column C shows the corrected amounts. You should explain what you are changing and the reasons why on the back of the form.

4. More than one year.  If you file an amended return for more than one year, use a separate 1040X for each tax year. Mail them in separate envelopes to the IRS. See “Where to File” in theinstructions for Form 1040X for the address you should use.
5. Other forms or schedules.  If your changes have to do with other tax forms or schedules, make sure you attach them to Form 1040X when you file the form. If you don’t, this will cause a delay in processing.
6. Amending to claim an additional refund.  If you are waiting for a refund from your original tax return, don’t file your amended return until after you receive the refund. You may cash the refund check from your original return. Amended returns take up to 16 weeks to process. You will receive any additional refund you are owed.
7. Amending to pay additional tax.  If you’re filing an amended tax return because you owe more tax, you should file Form 1040X and pay the tax as soon as possible. This will limit interest and penalty charges.
8. Corrected Forms 1095-A.  If you or anyone on your return enrolled in qualifying health care coverage through the Health Insurance Marketplace, you should have received a Form 1095-A, Health Insurance Marketplace Statement. You may have also received a corrected Form 1095-A. If you filed your tax return based on the original Form 1095-A, you do not need to file an amended return based on a corrected Form 1095-A.  This is true even if you would owe additional taxes based on the new information. However, you may choose to file an amended return.

   In some cases, the information on the new Form 1095-A may lower the amount of taxes you owe or increase your refund.  You may also want to file an amended return if:

   • You filed and incorrectly claimed a premium tax credit, or
   • You filed an income tax return and failed to file Form 8962, Premium Tax Credit, to reconcile your advance payments of the premium tax credit.

   Before amending your return, if you received a letter regarding your premium tax credit or Form 8962 you should follow the instructions in the letter.

9. When to file.  To claim a refund file Form 1040X no more than three years from the date you filed your original tax return. You can also file it no more than two years from the date you paid the tax, if that date is later than the three-year rule.
10. Track your return.  You can track the status of your amended tax return three weeks after you file with “Where’s My Amended Return?” This tool is available on IRS.gov or by phone at 866-464-2050.

You can get Form 1040X on IRS.gov/forms at any time.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

Call us for help or explanations.

IRS Summertime Tax Tip 2015-01, July 1, 2015

Learning you are a victim of identity theft can be a stressful event. Identity theft is also a challenge to businesses, organizations and government agencies, including the IRS. Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund.

Many times, you may not be aware that someone has stolen your identity. The IRS may be the first to let you know you’re a victim of ID theft after you try to file your taxes.

The IRS combats tax-related identity theft with a strategy of prevention, detection and victim assistance. The IRS is making progress against this crime and it remains one of the agency’s highest priorities.

Here are ten things to know about ID Theft:

1. Protect your Records.  Do not carry your Social Security card or other documents with your SSN on them. Only provide your SSN if it’s necessary and you know the person requesting it. Protect your personal information at home and protect your computers with anti-spam and anti-virus software. Routinely change passwords for Internet accounts.
2. Don’t Fall for Scams.  The IRS will not call you to demand immediate payment, nor will it call about taxes owed without first mailing you a bill. Beware of threatening phone calls from someone claiming to be from the IRS. If you have no reason to believe you owe taxes, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484.
3. Report ID Theft to Law Enforcement.  If your SSN was compromised and you think you may be the victim of tax-related ID theft, file a police report. You can also file a report with the Federal Trade Commission using the FTC Complaint Assistant. It’s also important to contact one of the three credit bureaus so they can place a freeze on your account.
4. Complete an IRS Form 14039 Identity Theft Affidavit.  Once you’ve filed a police report, file an IRS Form 14039 Identity Theft Affidavit.  Print the form and mail or fax it according to the instructions. Continue to pay your taxes and file your tax return, even if you must do so by paper.
5. Understand IRS Notices.  Once the IRS verifies a taxpayer’s identity, the agency will mail a particular letter to the taxpayer. The notice says that the IRS is monitoring the taxpayer’s account. Some notices may contain a unique Identity Protection Personal Identification Number (IP PIN) for tax filing purposes.
6. IP PINs.  If a taxpayer reports that they are a victim of ID theft or the IRS identifies a taxpayer as being a victim, they will be issued an IP PIN. The IP PIN is a unique six-digit number that a victim of ID theft uses to file a tax return.
7. Data Breaches.  If you learn about a data breach that may have compromised your personal information, keep in mind not every data breach results in identity theft.  Further, not every identity theft case involves taxes. Make sure you know what kind of information has been stolen so you can take the appropriate steps before contacting the IRS.
8. Report Suspicious Activity.  If you suspect or know of an individual or business that is committing tax fraud, contact us. Or you can visit IRS.gov and follow the chart on How to Report Suspected Tax Fraud Activity.
9. Combating ID Theft.  Over the past few years, nearly 2,000 people were convicted in connection with refund fraud related to identity theft. The average prison sentence for identity theft-related tax refund fraud grew to 43 months in 2014 from 38 months in 2013, with the longest sentence being 27 years.

   During 2014, the IRS stopped more than $15 billion of fraudulent refunds, including those related to identity theft.  Additionally, as the IRS improves its processing filters, the agency has also been able to halt more suspicious returns before they are processed. So far this year, new fraud filters stopped about 3 million suspicious returns for review, an increase of more than 700,000 from the year before.

10. Service Options.  Information about tax-related identity theft is available online. The IRS has a special section on IRS.gov devoted to identity theft and a phone number available for victims to obtain assistance.

But, most importantly, contact us as soon as possible so we can help. John is a Certified Fraud Examiner and can get you on the right track.

IRS Tax Tip 2015-67, April 23, 2015

You may be tempted to forget all about your taxes once you’ve filed your tax return. Do not give in to that temptation. If you start your tax planning now, you may avoid a tax surprise when you file next year. Now is a good time to set up a system so you can keep your tax records safe and easy to find. Here are some IRS tips to give you a leg up on next year’s taxes:

• Take action when life changes occur.  Some life events can change the amount of tax you pay. Some examples that can do that include a change in marital status or the birth of a child. When they happen, you may need to change the amount of tax withheld from your pay. To do that, file a new Form W-4, Employee’s Withholding Allowance Certificate, with your employer. Use the IRS Withholding Calculator tool on IRS.gov to help you fill out the form.
• Report changes in circumstances to the Health Insurance Marketplace.  If you enroll in insurance coverage through the Health Insurance Marketplace in 2015, you should report changes in circumstances to the Marketplace when they happen. Report events such as changes in your income or family size. Doing so will help you avoid getting too much or too little financial assistance in advance.
• Keep records safe.  Put your 2014 tax return and supporting records in a safe place. If you ever need your tax return or records, it will be easy for you to get them. For example, you may need a copy of your tax return if you apply for a home loan or financial aid. You should use your tax return as a guide when you do your taxes next year.
• Stay organized.  Make tax time easier. Have your family put tax records in the same place during the year. That way you won’t have to search for misplaced records when you file next year.
• Shop for a tax preparer.  By contacting John now, he will be able to work with you and have you up to speed by January.
• Think about itemizing.  If you claim a standard deduction on your tax return, you may be able to lower your taxes if you itemize deductions instead. A donation to charity could mean some tax savings. See the instructions for Schedule A, Itemized Deductions, for a list of deductions.

Planning now can pay off with savings at tax time next year. Contact us for help.

IRS Special Edition Tax Tip 2015-08, May 26, 2015

On the heels of the Memorial Day Flood in Central Texas, and the start to Hurricane Season, you need to be informed and prepared. If you suffer damage to your home or personal property, you may be able to deduct the losses you incur on your federal income tax return. Here are 10 tips you should know about deducting casualty losses:

1. Casualty loss.  You may be able to deduct losses based on the damage done to your property during a disaster. A casualty is a sudden, unexpected or unusual event. This may include natural disasters like hurricanes, tornadoes, floods and earthquakes. It can also include losses from fires, accidents, thefts or vandalism.
2. Normal wear and tear.  A casualty loss does not include losses from normal wear and tear. It does not include progressive deterioration from age or termite damage.
3. Covered by insurance.  If you insured your property, you must file a timely claim for reimbursement of your loss. If you don’t, you cannot deduct the loss as a casualty or theft. You must reduce your loss by the amount of the reimbursement you received or expect to receive.
4. When to deduct.  As a general rule, you must deduct a casualty loss in the year it occurred. However, if you have a loss from a federally declared disaster area, you may have a choice of when to deduct the loss. You can choose to deduct the loss on your return for the year the loss occurred or on an amended return for the immediately preceding tax year. Claiming a disaster loss on the prior year’s return may result in a lower tax for that year, often producing a refund.
5. Amount of loss.  You figure the amount of your loss using the following steps:
   • Determine your adjusted basis in the property before the casualty. For property you buy, your basis is usually its cost to you. For property you acquire in some other way, such as inheriting it or getting it as a gift, you must figure your basis in another way. For more see Publication 551, Basis of Assets.
   • Determine the decrease in fair market value, or FMV, of the property as a result of the casualty. FMV is the price for which you could sell your property to a willing buyer. The decrease in FMV is the difference between the property’s FMV immediately before and immediately after the casualty.
   • Subtract any insurance or other reimbursement you received or expect to receive from the smaller of those two amounts.
6. $100 rule.  After you have figured your casualty loss on personal-use property, you must reduce that loss by $100. This reduction applies to each casualty loss event during the year. It does not matter how many pieces of property are involved in an event.
7. 10 percent rule.  You must reduce the total of all your casualty or theft losses on personal-use property for the year by 10 percent of your adjusted gross income.
8. Future income.  Do not consider the loss of future profits or income due to the casualty as you figure your loss.
9. Form 4684.  Complete Form 4684, Casualties and Thefts, to report your casualty loss on your federal tax return. You claim the deductible amount on Schedule A, Itemized Deductions.
10. Business or income property.  Some of the casualty loss rules for business or income property are different than the rules for property held for personal use.

You can call the IRS disaster hotline at 866-562-5227 for special help with disaster-related tax issues. For more on this topic and the special rules for federally declared disaster area losses see Publication 547, Casualties, Disasters, and Thefts. You can get it and IRS tax forms on IRS.gov/forms at any time.

And for personal assistance, contact us today.

To mark the start of the hurricane season, the IRS urges you to make a plan to keep your tax records safe. Plans made before a disaster strikes can help you recover from the destruction left in its wake. The following tips can help you make that plan:

• Use Electronic Records.  You may have access to bank and other financial statements online. If so, your statements are already securely stored there. You can also keep an additional set of records electronically. One way is to scan tax records and insurance policies onto an electronic format. You may want to download important records to an external hard drive, USB flash drive or burn them onto CD or DVD. Be sure you keep duplicates of your records in a safe place. For example store them in a waterproof container away from the originals. If a disaster strikes your home, it may also affect a wide area. If that happens you may not be able to retrieve the records that are stored in that area.
• Document Valuables.  Take photos or videos of the contents of your home or business. These visual records can help you prove the value of your lost items. They may help with insurance claims or casualty loss deductions on your tax return. You should also store these in a safe place. For example, you might store them with a friend or relative who lives out of the area.
• Count on the IRS for Help.  If you fall victim to a disaster, know that the IRS stands ready to help. You can call the IRS disaster hotline at 866-562-5227 for special help with disaster-related tax issues.
• Get Copies of Prior Year Tax Records.  If you need a copy of your tax return you should file Form 4506, Request for Copy of Tax Return. The usual fee per copy is $50. However, the IRS will waive this fee if you are a victim of a federally declared disaster. If you just need information that shows most line items from your tax return, you can call 1-800-908-9946 to request a free transcript. You can also get it if you file Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript, or Form 4506-T, Request for Transcript of Tax Return.

Do your tax records make you look like a perfect candidate to resurrect the “Hoarders” television show? Then it’s time for some tax housekeeping.

Prolific pack rats insist on keeping every scrap of paper, just in case. And when it comes to tax paperwork, folks are even more adamant. “These documents will save me,” they argue, “if an IRS auditor comes visiting.”

But that’s not necessarily the case, say tax and organizational experts.

There are limits

When it comes to tax-related documents, you should hang on to records that help you identify sources of income, keep track of expenses, determine the value of property, prepare tax returns or support claims made on those returns. However, common sense — as well as storage space — should be your guide.

The rule of thumb for tax papers is hold on to them until the chance of audit passes. Usually, this is three years after filing. But if the IRS suspects you under-reported your income by 25% or more, it gets six years to check into your tax life.

That’s why most accountants advise taxpayers, even those who are meticulous filers, to keep tax documents for six to 10 years.

Use it or lose it

This means 1040 forms and any accompanying tax schedules, along with the documents supporting the return, such as W-2s, 1099 miscellaneous income statements and receipts or canceled checks verifying tax-deductible expenses.

Hang on to anything that you need to do your taxes.

But don’t go overboard. If you used something to claim a deduction, keep it. If not, shred it. For example, all those medical bills are useless — and just taking up space — if you didn’t accumulate enough to meet the deduction threshold.

Some items, however, have a longer shelf life. These generally are assets that a taxpayer will eventually sell, triggering a tax bill. So if you have a pension plan, own a home or invest in the stock market, tax pros recommend keeping these records indefinitely. Or at least until three years after you dispose of the asset.

Housekeeping — and selling — records

For most taxpayers, the biggest asset — and potential tax bill — is a home.

While the tax rules for home sales have changed in recent years, meaning sale profits don’t automatically face IRS charges, any paperwork relating to a residence should be kept for as long as the home is owned.

Single home sellers now can net capital gains of $250,000 (double that for married couples) before owing the IRS. To determine whether sale profits fall within the tax-free limits, the seller must accurately establish a residence’s basis. That means that records related to a home’s value, such as settlement papers and receipts for improvements and additions, are critical.

And if you sold a house before May 7, 1997, that could affect your current home’s basis. With home sales back then, taxpayers were able to defer tax on any gain by using the profit to purchase another home and filing IRS Form 2119. If the home you’re now selling is the one your pre-1997 sale proceeds were rolled into, you’ll need that information — and those old forms — to figure your current property’s basis and any potential tax bill.

Taking stock of investments

Fast on the heels of home sales as tax triggers (and record-keeping headaches) are stock transactions.

Keeping track of a CD or two isn’t that difficult, but when you move on to stocks, the tax record keeping becomes critical.

Investment account statements contain financial data that a taxpayer will need as long as the stock or mutual fund is owned. On the stock side, there may be splits that change the value of the holding and, therefore, the eventual worth of the stock, which is used to determine the taxable basis.

For mutual funds with reinvested dividends, owners pay a tax each year on these earnings. These taxes are used to increase a fund’s basis so when the fund is sold, the final tax bill will be less. Without statements, it’s easy to lose track of those payments, says Durand, and a fund owner could inadvertently pay double taxes on earnings.

Retirement record requirements

And then there are all those retirement savings plans, with all those different rules. Contributions to traditional IRAs often are tax-deferred. But sometimes already-taxed money goes into these accounts, too. What happens to your taxes when you reach 59 1/2 and start taking out money?

That depends in large part on your record keeping.

Statements from IRA fund managers should note whether contributions were tax-deferred or already taxed. The financial reports also keep track of the tax-deferred earnings, compounding year after year. These documents can help you make your case to the IRS when it comes time to pay the tax bill, so hang on to them all for as long as you have the account.

IRS Form 8606 also can help track retirement plan taxes. This form, which is filed only in the years that nondeductible contributions are made, calculates the taxable basis of an IRA. File and keep copies of each 8606 with your retirement plan data.

Business considerations

If you operate a small business, from a moonlighting job to a small operation with several employees, dealing with records becomes a bit more complex. But even then, it doesn’t have to overwhelm you.

The IRS generally focuses on self-employed travel and entertainment expenses, scrutinizing returns to make sure all the expenses are really related to the business and can be proven. In these cases, complete and accurate — but not overdone — contemporaneous records need to be kept until the audit threshold passes.

Unlike personal bank statements, business financial account records should be kept permanently. Similarly, anyone who has employees should hang on to employment information and related tax returns for as long as the business is running. And don’t shred articles of incorporation, company bylaws, stockholder minutes, and trademark and copyright applications.

Pick a system, any system

Once you’ve identified critical records, the next step is to decide how to keep the data. Electronic bill paying can help keep track of your financial and tax life, but so can a plain old check register, as long as expenditures are entered faithfully.

It doesn’t matter if it’s a filing cabinet, cardboard boxes or a complex computer program. The key is to find your record-keeping comfort level, pick a system and stick with it.

And when it comes to taxes, it’s even more important to be proactive in record keeping. Start now rather than waiting until April’s tax-filing deadline. Such diligent organization could make any IRS examination easier.

All it takes is a reasonable evaluation of your piles of paper and a little bit of common sense.

For more information and help, contact us.

~Taken from an article by Kay Bell