NEW YORK (MainStreet) — I hope that high on your list of 2013 New Year’s Resolutions is “Become more informed about taxes.”
It is impossible to know the right moves to make in your daily financial life without a basic knowledge of the tax implications of your actions.
Learn what items you can, and cannot, deduct on your tax return, including the special items unique to your trade or profession and the rules governing any special situations that apply to you. And keep up-to-date on federal and state tax law changes.
Even if you use a tax professional to prepare your return, the more informed you are on taxes the more prepared you will be when you go to your annual appointment.
Also on your list of resolutions should be “Keep good tax records.”
You must keep detailed, contemporaneous records of all your income and deductions in the manner prescribed by the IRS and tax code.
Set up a good system for maintaining tax records and receipts. You have many options for creating your filing system — an accordion file, a three-ring binder with manila envelopes, a small hanging file — but you must have a place to keep bills, receipts and records by category. As you get documentation for income or a deductible item, file it immediately in the appropriate folder or envelope.
Be aware that some deductions require special record keeping or additional information, such as business meals and entertainment, business use of automobiles and computers, gambling losses and charitable donations.