In terms of how long to keep records, save all of your tax returns and documents for at least 7 years. This is important. It may seem like a long time, but keeping your tax returns and the supporting documents in order for this long is important. The IRS can audit your return for up to three years from your filing date. However, the three-year limit only applies to good-faith errors. If they suspect any problems were intentional, they can go back 6 years or more, so 7 years is a safe time period.
The reason that you want to keep all of this? Because tax court is one of the few places where failure to report proof of claims results in an assumption of guilt. So, whenever the IRS challenges you, the burden of producing evidence that your claims are true rests on you, so you better have your documentation in order!
Tom: What else should people know?
Mellody: Well, Tom, I promised you it wouldn’t all be about organization, so I have a few tips on possible savings. First, despite rumors that some of the most valuable homeowner deductions might be eliminated or modified, taxpayers were spared. In mid-December, Congress passed the Protecting Americans From Tax Hikes Act of 2015. Many exemptions that would have expired were extended, and others were made permanent. The included the exemption for private mortgage insurance to protect the mortgage holder; the tax credit for energy-efficient home improvements; and the exclusion for mortgage-debt forgiveness for owners of a foreclosed or short-sale home.
Other exemptions that you might be able to take advantage of are expenses that you incurred during a job search or moving for a job. Also, be sure to get your deductions for state and local taxes. Finally, if you have someone prepare your taxes for you, that is also deductible. Just remember, there are a number of savings out there, and they are easy to take advantage of if you are organized and prepared!
Tom: Thanks for getting us in gear for tax season, Mellody! Have a great day!
Mellody: Thanks for having me, Tom! Less than 3 months until April tax time, so make sure you take the time to get organized!
Money Mondays: What You Need To Know About The 2016 Tax Season was originally published on blackamericaweb.com