Preparing for "tax time" can be difficult. If you received income from multiple sources or maintain a diversified investment portfolio, you may wish to talk to a qualified financial planner or tax preparation specialist. Although retaining a qualified professional to help you file your taxes can cost a significant amount of money, it may pay off in the long run. If you're entitled to a large refund, your investment in a tax specialist may provide you with handsome returns. After all, most tax refunds are the result of numerous credits and deductions. If you're not aware that you're eligible for such credits and deductions, you may end up without anything to show for your hard work during the year.
If you're confident that you qualify for certain tax deductions and credits, you'll need to provide evidence to back up your claims. These might include receipts, bills, rent statements, mortgage statements and other important pieces of information. While you won't have to file any of these papers with your actual tax return, you'll need to keep track of them after filing your taxes. This is to protect against the very real possibility that you'll face an IRS audit at some point during the year. Whereas individuals with straightforward tax situations rarely face an IRS audit, those who earn multiple streams of income are liable to receive a summons from the IRS at some point. If this happens to you, you'll need to be prepared.
Throughout the year, maintain an orderly system for filing any tax-related receipts, bills and statements. Put any paper records in folders and keep them close at hand. If you're familiar with the tax code, consider using a separate folder for each deduction that you wish to claim. You should store any digital records in a dedicated e-mail folder.
Once you've filed your taxes for the year, move your refiled bills and receipts to a new location. If you have an old filing cabinet, use dividers to separate your most recent set of bills and receipts from your older ones. Alternatively, you could use legal archive boxes or other forms of storage. It's important that you keep these records on hand for at least a decade. The IRS's auditing department is subject to punishing backlogs. As such, it often surprises taxpayers with audits that look back for many years. If you're unprepared for such an audit, you could face substantial financial penalties.