One area many people struggle with when it comes to taxes is which documents should they keep and what should they dispose of. We’re here to make this a little easier and share with you what should stay and what can go! Let’s start with the documents you should keep.
Often forgotten are medical expenses which people incur each and every year. Did you know you can deduct some of your medical expenses? Most medical expenses qualify for a deduction, except for cosmetic surgery and most non-prescription medication. In order to qualify for a medical expense deduction, you would have had to pay more than 10% of your adjusted gross income (AGI). This is your taxable income minus deductions, credits, and retirement contributions. Learn more about deducting medical expenses from TurboTax.
Child Care Expenses
Dependent care can be expensive, depending on where you live in the US. Some places average around $5,000 a year and others $16,000. Luckily for you, the IRS allows you a credit of up to 35% of qualified child/dependent care. In order to qualify for this credit, you need to have paid someone to take care of your child or dependent and have it documented. This cannot be your spouse or your other child.
Most daycares and dependent care facilities have the appropriate tax IDs, which allow you to file for this credit. Currently, the IRS allows up to $3,000 for one child or $6,000 for two or more. If you paid over this amount, then you only get up to the maximum. You don’t get credit for anything over. Take a moment to learn more about this tax credit.
As you may know, mortgage paperwork is important. If you bought or sold a home in the last tax year, then you need to keep this paperwork handy. On top of that, you really should keep any mortgage paperwork for as long as you own your home. These documents are incredibly useful when questions arise relating to your home and subsequent mortgage.
You should also pay attention to any points you paid to obtain the mortgage, along with mortgage interest and any private mortgage insurance (PMI) you paid. These documents will help you bring down your taxable income.
Applicable Business Expenses
Not everyone is a business owner, but there are quite a few who run businesses on the side of their full time job. If you have any legitimate business where you earned income, then you need to keep diligent records of where the income came from. Along with your income for the business, you should keep all records of applicable expenses for the business.
If you are not sure what applies as a business expense, then it might be a good idea to consult a tax attorney. Remember, doing so is also an expense you can deduct, no matter if you own a business or not. You should keep these records for at least three years in case of an audit. Owning a business and working a job where you receive a W-2 heightens your risk for an audit.
Documents You can Toss
Not every document/receipt is important when it comes down to tax time. The IRS doesn’t want to see every place your money goes, as long as you aren’t trying to hide it or short the government. Here are some documents you can toss out to keep yourself a little organized.
A Majority of Receipts
You don’t need to keep your receipt from Starbucks or your favorite restaurant. These are just everyday expenses, which don’t need to clutter up your house. Given the fact that most receipts can be sent electronically or are a few clicks away on our bank’s website, there is no reason to keep most receipts. If you enter them into money management software, then do away with them afterwards.
Unless you are running a business out of your house, your household bills don’t need to be kept. You can throw away your cable bill and water bill after you pay them. You don’t need those records. If you do run your business out of your home, then it gets a little more complicated. Speak with a tax attorney to see how much of those household bills you can deduct. Everything else can go in the trash or shredder.
All Junk Mail
Who likes junk mail these days? We get it in both our email inboxes and our mailboxes. It’s everywhere! Luckily for you, you don’t need to keep any of it. Throw it away in the trashcan if it’s not financially related. Anything that may have personal information on it should be run through a shredder.
The key to understanding what documents to keep and what to throw away comes down to your financial picture. If you do a lot of investing, you need to keep those documents. If you have one job with little other expenditures, then you probably won’t need to keep many documents. When in doubt, keep it for when you go through your taxes. It’s better safe than sorry when it comes to taxes and the IRS.
Not only is tax time great for getting your finances in order, but also for getting a head start on your spring cleaning. What a better way than getting rid of all those old receipts in your shoebox and junk mail piling up on the desk. Only keep what you think you need for taxes. All the rest can be taken to the curb!
By Grayson Bell, Staff Writer