Happy New Tax Year!
Time to make a new resolution to keep better records so you won't become certifiable next year trying to reconstruct income and outgo.A neat file of records will help at tax time and will prove valuable if the IRS audits your return. The government agency recommends you have records supporting every item on your return. Such records include sales slips, invoices, receipts, canceled checks, charge card vouchers, stock brokerage statements and IRS Forms W-2, W-P2 and 1099.
If you don't have a document, a log showing the information that would be on it might be helpful. You can use logs to record business miles in your car and charitable donations when you don't get a receipt.
The closing statements on the purchase and sale of your home as well as invoices and canceled checks for improvements through the years will be valuable if the IRS ever requires you to pay tax on the sale of your home.
On the off chance you didn't keep as clear a picture of your financial life as you should have, the George M. Cohan case may help. The musician-composer's 1930 challenge of the IRS in court set a precedent for giving taxpayers without adequate records some credit for some expenses, sometimes.
Because George P. Fanning didn't have adequate records, he asked the Tax Court to remember Cohan.
Fanning, a psychiatric social worker, believed having food on hand for his clients was important for group sessions, especially with people trying to quit cigarettes, alcohol or drugs. He felt food created an atmosphere conducive to the sharing of close feelings and thoughts.
Each week the Boston social worker gave a check to his housekeeper, Queenia Prince, to buy food and other supplies.
The IRS disallowed his $9,185 deduction of these supplies.
The judge disagreed with the tax-man. He allowed a $2,600 deduction under the authority of the Cohan rule.
THE MORAL: Take a bite out of taxes - keep better records.