Organizing your Tax Records

Feb 2019

There is no doubt the last week reminded us what winter is like in Michigan. Like most people with the cold weather, I was forced to stay home, and as opposed to watching TV, I took the opportunity to take care of some things around the house that have been piling up. I also took the opportunity to organize my 2018 tax records and actually set up a tax file for 2019. With the IRS now accepting 2018 tax returns, if you haven’t done so, now is a great time to organize your records and make sure you have all the information you need.

The easiest way to determine if you have all the information you need to complete your return is to start with last year’s return. Using last year’s return as a guide should help you determine if you received all your W-2s from any jobs you worked, and 1099’s for other income you earned such as interest and dividends. If for example you have not received your W-2 or 1099, now is the time to contact the company and make sure you get the necessary paperwork. Unfortunately, too many people seem to think that if they didn’t receive a 1099 there’s nothing to worry about. That’s not the case. Remember, the IRS also gets a copy of the 1099, and if you don’t report the income, the IRS is going to contact you.

In organizing your records it’s not just 1099s and W-2s you need to be concerned with. For example, if you are going to itemize your deductions this year and you make charitable contributions, it’s important you have the proper documentation in order to take the deduction. An example of this is if you contribute $250 or more to a charity, you need a receipt from the charity, and that receipt needs to say the amount of the gift and that you did not receive anything in return. If you have not received a receipt from the charity, now is the time to ask for it. If the IRS ever does contact you regarding that contribution, the receipt will be a necessity.

If you sold stocks or mutual funds in 2018, it is important that you report the transaction. In reporting the transaction not only do you have to report the sale price, but also your cost basis. For many of you, your cost basis will be reported on a 1099-B. However, in many situations the cost basis will not be reported and you will need to provide it. Therefore, it is important to make sure you have the information regarding the sales price and the cost basis on all the sales you had in 2018. If your cost basis was not reported on a 1099-B it may take some time to recreate that number; therefore, you should not wait until the last second.

The bottom line is that the earlier you start doing your prep work for your 2018 tax return, the easier completing your return will be. It doesn’t matter whether you’re going to do your return yourself or hire a preparer, the more organized your records are, the faster it will be to complete your return, which means if you’re hiring a preparer it should also save you money.

One question I’m always asked at tax time is whether it makes a difference when you file your tax return? I have always told people from an audit standpoint that it doesn’t matter. Whether you file in February or file for an extension and don’t complete your return until October, your audit risk is the same. What does increase your audit risk, no matter when you file, is if your return is inaccurate or sloppy. I believe that still holds true today. However, over the last few years it has become clear that there is a benefit to filing your return early. It has nothing to do with audit risk; rather, it has to do with identity thieves stealing your refund. Over the last number of years it has become more and more of a problem where crooks file a return on your behalf and then get your refund. Unfortunately, you only find out about it after you file your legitimate return and your refund is denied. Therefore, the sooner you file your return, the less risk you have of the identity thieves filing a return on your behalf.

Thankfully, the brutal weather is going to ease up; however, it’s still winter in Michigan. Therefore, it makes sense to organize your tax records as soon as possible, and if you have all the information you need, why not get your tax return prepared as soon as possible.

Good luck!



Rick is a fee-only financial advisor. His website is If you would like Rick to respond to your questions, please email Rick at