Why Keep Records?
There are a range of reasons to keep records. In addition to tax purposes, people may need to keep them for insurance purposes or for getting a loan. Good records is useful to:
Identify sources of income. People may receive money or property from a variety of sources. Records help them determine the sources of income needed to separate business from non- business income and taxable from nontaxable income.
Keep track of expenses. This will help taxpayers identify expenses if they can itemize deductions on their tax return.
Keep track of the basis of property. This includes the original cost or other basis of the property and any improvements made.
Prepare tax returns. Up-to-date records help you to file quickly and accurately.
Support items reported on tax returns. People must keep records in case the IRS has questions about an item on their return. If the IRS examines their tax return, they may be asked to explain the items reported. Good records will help them explain any item and arrive at the correct tax with a minimum of effort. Without records, they may have to spend time getting statements and receipts from various sources. If they cannot produce the correct documents, they may have to pay additional tax and be subject to penalties.