Proper recordkeeping is always prudent, but it’s especially critical in financial and investment areas affected by taxes. Your inability to document transactions for tax, estate, and investment purposes can be very costly. Here are ideas to help with your recordkeeping.
Investment expenses: You can deduct all expenses incurred for security transactions (telephone, mail, travel, etc.), as well as tax preparation fees and professional dues and publications related to investments. You also can deduct the annual fees you pay for a Keogh or IRA. Advisory: Keep in mind that these expenses are deductible only to the extent they exceed 2% of your adjusted gross income (AGI).
Security transactions: Save all stock and bond confirmations, as well as all 1099s and other cost records on important investments, e.g., antiques, art, and coin collections. Remember, when you sell the investments, you will have to document your cost basis in order to determine your capital gain or loss.
Checkbooks: Business, investment, and personal (mortgage) interest have different tax treatments. To help with your recordkeeping for tax purposes, consider separate checking accounts for recording income and expenses in each category.
Retirement plans: IRA, Keogh, employer plans. All data should be kept indefinitely, including annual statements, contributions by you and your employer, buy and sell confirmations, and correspondence from your employer and other institutions with whom you have retirement accounts. In addition, keep all information on rollovers.
After-tax contributions: The records of your personal contributions to retirement plans are also very important. If you made contributions with after-tax income, the amounts distributed to you (excluding capital gains and income) are not subject to taxation. An example of this would be voluntary 401(k) contributions made with your after-tax income.
Resource Report #32: Your Investments: 44 Action Alerts to Use Today and Throughout the Year