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Set Your Records Straight!
Get Started on Good Financial Record Keeping
By Teri Brown
Bartlett also believes that if you are forced to reconstruct business activities after the fact, the results may be inaccurate. "Good record keeping is a type of preventive maintenance," says Bartlett. "It prevents you from possibly having to spend more time and money later recreating records, requesting copies or paying fines and penalties."
Most people freeze up at the very thought of fines and penalties due to poor record keeping, but the majority aren't exactly sure of what to keep and what to toss.
"Although there aren't any record keeping police that will assess a fine if you don't keep accurate records, there may be additional tax plus penalties and interest assessed if you can't produce certain documents when requested," says Bartlett. "For example, if you don't have the documents to substantiate a medical expense deduction on your tax return, the IRS may deny your deduction and send you a bill for the additional income tax owed plus penalties and interest."
Bartlett says that while it generally isn't necessary to submit receipts with your return, you do need to be prepared to substantiate each item in case it is questioned or audited. The cost of not having a particular receipt or document may range from the inconvenience of having to obtain a copy to having a significant deduction or credit denied.
Some of the most important records you can keep pertain to the purchase of your home plus any improvements you make. Bartlett says these are needed to determine your basis – used to calculate gain or loss on the sale – when you sell your home.
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