One of the most important elements of tax planning and preparation is recordkeeping. While this may seem the epitome of the routine and mundane, you must realize that it may be one of the most important parts of asserting any claim or defense, should the Internal Revenue Service or the Ohio Department of Taxation challenge your tax filings for a given year.
For your tax records, two factors are likely to be highly significant. Accuracy should always be a goal for all of your records. Second, your records should be maintained in a contemporaneous manner. This means you should collect and maintain these records in real-time, as events occur. Should you ever be faced with an audit or other examination by the IRS, your defense will be made more complex if your records were assembled after-the-fact, and after the IRS has requested them, especially if their accuracy is questionable.
For instance, if you claim a deduction for services performed on rental real estate activity, having contemporaneous logs of your activities for the period claimed is essential. That those logs maintain some degree of verisimilitude is equally important. One taxpayer who claimed such a deduction produced logs that showed he spent as much as one hour per check on activities related to writing checks for mortgage payments on the rental real estate he owned.
The Tax Court noted that it does not “exist in a vacuum” and it recognized that claiming it could take more than one hour to write a routine check undermined the reliability of the logs submitted by the taxpayer. He further damaged his case by logs, which showed he had spent more than 25 hours in a single day engaged in this activity.
Tax law is often quite technical and sloppy or imprecise recordkeeping may be seen as an indicator of potential fraud or, at least, negligence. Such negligence, even if inadvertent, will likely cost you both your case and your claimed deduction.
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