Documents to Save for Tax Deductions and Credits

Page Updated on November 24, 2007

Tax laws change every year, so assume this page is out of date and make sure you visit http://www.irs.gov to verify everything I have here and to find out additional information before you take my advice and file your taxes and seek professional help for tax questions.

What Is a Deduction

Deductions reduce your adjusted gross income (the income you are actually taxed on). It's like the IRS gives you permission to say that you earned less than you actually did, so you end up being taxed less. If you made $30,000 and were taxed 10%, you would owe $3,000 in taxes. If you had a $100 deduction, you would be taxed on $29,900 and would owe $2,990 in taxes. You save $10. You have a choice between itemizing deductions and accepting the standard deduction. With the standard deduction, the IRS just gives you an amount that you can deduct; there is no recordkeeping involved. With itemized deductions, you keep track of everything that is deductible with the hopes that you will end up being able to deduct more than the standard deduction, saving you more money.

What Is a Credit

Credits are applied toward the actual amount you have to pay. It's like the IRS gives you a break on what you owe. If you owe $2000 and you qualify for a $100 tax credit, the IRS will take off $100 from the amount that you owe, so you'll only owe $1900. You save $100.

Get Organized

Get a big, cheap accordion-folder (or find a small one you can stick into your filing cabinet) and use each section for each deductions category. You can set up your categories any way that you want. Some people prefer to put all of the taxes together, all of the interest together, etc., while other people prefer to put things together based on the item they're associated with, such as putting both the property taxes and mortgage interest together under a real estate category. I prefer putting things together based on how I will need to access them when I prepare the tax return.

Keep Those Receipts

Deductions and credits are all about keeping receipts for things that may be deductible or help you qualify for a credit. This is where your filing system comes in. Receipts fall out of file folders and envelopes are too cumbersome. Accordion-folders work perfectly. If you have a receipt that you wish to also file in your filing cabinet, make a copy of it and put the copy with your tax records, and put the original in your filing cabinet. (This is a very good reason to get a multi-function printer with a quick copier function to reduce time spent scanning.) All receipts should have the date, description of the transaction, amount or value at the time of the transaction, and name of and contact information for the organization you did the transaction with. Always ask for a receipt, even if one isn't offered.

Taxes

• Local Income Taxes Paid During the Year
  Even if it was for previous tax years. Even if it was for future taxes.
• State Income Taxes Paid During the Year
  Even if it was for previous tax years. Even if it was for future taxes.
• Foreign Income Taxes Paid During the Year
• Real Estate / Property Tax
• Annual Taxes on Personal Property
  This includes things such as a car registration fees.

Interest

• Mortgage Interest (including points)
• Student Loan Interest
• Investment Interest

Education

• Tuition Payments

Retirement Accounts

• Contributions to Traditional IRAs

Donations to Charities, Non-Profit Organizations (including US Governments, federal, state, local, etc.)

• Money Donated
• Items Donated
  This includes items such as clothes you donated to a charity thrift store or a car you donated to a charity.

Job Expenses

• Clothes / Uniforms
• Necessary Equipment
• Supplies
• Professional Publication Subscriptions
• Safety Items
• Dues to Professional Organizations
  (unions, chamber of commerce, associations, etc.)
• Job Search Fees
  (payments to employment agencies, resume preparation, etc.)

Medical/Dental Expenses

• Transportation Log for Medical Purposes
  Keep a log of your mileage, gas and oil costs, automobile maintenance fees, parking fees, bus fare, taxi fare, train fare, and air fare. It is also wise to keep your receipts for fuel costs, parking fees, tolls, and fares if they are available.
• Ambulance fees

Miscellaneous Expenses

• Tax Preparation Fees
  (including the cost of tax software)
• Loss of Property from Casualty or Theft
• Losses from Gambling
• Custodial Fees
  (paying trustees, executors, etc.)