Tax Tip: Keep Good Records

NEW YORK (MainStreet) — Tuesday's tax tip explained the reasons to start preparing for next year's tax return now, but how do you develop a system to maintain your tax records during the year?

You have many options for creating your filing system - an accordion file, a 3-ring binder with manila envelopes, a small hanging file – but the point is to establish a place to keep bills, receipts and records by category. As you receive documentation for a deductible item, immediately file it in the appropriate folder or envelope.

Some deductions require special record keeping or additional information, though.

For business meals and entertaining you must record the time and place, the name and relationship of the persons you are entertaining, and the business purpose. The back of your credit card receipt for the meal or drinks is a good place to record this information.

In the case of business, medical or charitable use of your car, and also for gambling losses, you should keep a log or diary.

For contributions to charity you must have receipt for every dollar you contribute to a church or nonprofit organization.  This can be a cancelled check, a bank record (such as a copy of the front of the check from your monthly bank statement), or a written statement from the organization you donated to with the name of the church or charity and the date and amount of the contribution. Churches will often issue an annual year-end statement if you use their envelope system.

You can also use a credit or debit card receipt or an entry on a bank or credit card statement as your official record.

It may seem a bit early in the process, but a little bit of organization now will save you tons of time when preparing your return next year.