J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

46.1 Keeping Tax Records

To maximize tax-savings opportunities, you must keep good records throughout the year. Good record-keeping makes it easier to prepare your return, reduces errors, and provides a defense to any challenge from the IRS.

• Make a habit of jotting down deductible items as they come along.
• Keep a calender or diary of expenses to record deductible items.
• Keep a file of bills and receipts. This will remind you of deductible items and provide you with supporting evidence to present to the IRS if audited.
• Use your credit card receipts, online account statements, and checkbook stubs as a record. If you own a business, you must keep a complete set of account books for it.

IRA records.

If you have made nondeductible contributions to a traditional IRA, keep a record of both your nondeductible and deductible contributions. This will help you when you withdraw IRA money to figure the tax-free and taxed parts of the withdrawal (8.9). Also keep records of contributions and conversions to Roth IRAs (8.20–8.21). For these purposes, you should keep copies of Form 8606 and Form 5498 (8.8).

Reinvested mutual-fund or ETF distributions.

Keep annual statements that record the amount of mutual-fund or ETF distributions that you have reinvested in additional fund shares. The reinvested amounts are part of your cost basis in the fund. Unless your fund keeps track of basis for you, you need to know your basis when computing gain or loss on the redemption of fund shares (32.10).

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