Tax Preparedness for Next Filing Season

Tax Preparedness Series: Gathering Essential Documents for Next Filing Season

FS-2015-26, November 2015

Well-organized records make it easier to prepare a complete and accurate income tax return next filing season. The Internal Revenue Service encourages individuals to gather the adequate documents that can also help provide answers if their return is selected for an audit or to prepare a response if they receive an IRS notice.

This fact sheet is part of a series of weekly tax preparedness products designed to help taxpayers begin planning to file their 2015 returns.

Basic Recordkeeping Tips:

Identify sources of income. This will help separate business from nonbusiness income and taxable from nontaxable income.

Keep track of expenses. Use records to identify expenses for which a deduction can be claimed. This helps determine if deductions can be itemized on the tax return.

Keep track of the basis of property. This includes the original cost or other basis of the property and any improvements made.

Prepare tax returns. Records are needed to prepare a tax return.

Support items reported on tax returns. The IRS may question an item on a taxpayer’s return. Their records will help explain any item and arrive at the correct tax. If the correct documents cannot be produced, this could result in the payment of additional tax and potentially be subject to penalties.

Records such as receipts, canceled checks and other documents that support an item of income, deduction or credit appearing on a return must be kept as long as they are relevant under federal tax law. Generally, this will be until the statute of limitation expires for that return. For assessment of tax owed on a timely-filed return, this usually is three years from the due date of the return.

Kinds of Records to Keep

Although the law does not require any special form of records, be sure to keep all receipts, canceled checks or other proof of payment and any other records to support any deductions or credits claimed. Also, for any refunds claimed, a taxpayer’s records must show that they actually overpaid their tax.

Electronic records – All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. When replacing hard copy books and records, make sure to maintain the electronic storage systems for as long as they apply under federal tax law.

Copies of tax returns – These can help prepare future returns and could be needed if filing an amended return or for an audit. Copies of past returns and other records can also be helpful to the survivor or executor or administrator of a taxpayer’s estate.

If necessary, request a copy of a return and all attachments (including Form W-2) from the IRS by using Form 4506, Request for Copy of Tax Return. There is a charge for a copy of a return.

Basic Records – These are documents that everybody should keep and that prove income and expenses. If a taxpayer owns a home or investments, basic records should contain documents related to those items.

Income – These records prove the amounts reported as income on the tax return and may include wages, dividends, interest and partnership or S corporation distributions. Records can also prove that certain amounts are not taxable, such as tax-exempt interest. If a taxpayer receives a Form W-2, they should keep Copy C until they begin receiving Social Security benefits to protect their benefits in case there is a question about their work record or earnings in a particular year.

Expenses – Basic records prove the expenses for which a deduction or credit is claimed on a tax return. Deductions may include alimony, charitable contributions, mortgage interest and real estate taxes. There may also be child care expenses for which a credit can be claimed.

Home – These should enable taxpayers to determine the basis or adjusted basis of their home. This information will be needed to determine if there is a gain or loss when selling a home or to figure depreciation if part of the home is used for business purposes or for rent. Records should show the purchase price, settlement or closing costs and the cost of any improvements. They also may show any casualty losses deducted and insurance reimbursements for casualty losses. Records also should include a copy of Form 2119, Sale of Your Home, if the previous home was sold before May 7, 1997, and postponed tax on the gain from that sale. When selling a home, records should show the sale price and any selling expenses, such as commissions.

Investments – Basic records should enable taxpayers to determine their basis in an investment and whether they have a gain or loss when selling it. Investments include stocks, bonds and mutual funds. Records should show the purchase price, sales price and commissions. They may also show any reinvested dividends, stock splits and dividends, load charges and original issue discount (OID).

Proof of Payment – Taxpayers should keep these records to support certain amounts shown on their tax return. Proof of payment alone is not proof that the item claimed on the return is allowable. Taxpayers should also keep other documents that will help prove that the item is allowable. Generally, payments are substantiated with a cash receipt, financial account statement, credit card statement, canceled check or substitute check. If payments are made in cash, be sure to get a dated and signed receipt showing the amount and the reason for the payment. If payments are made using a bank account, it is possible to prove payment with an account statement.

Account statements – It is possible to prove payment with a legible financial account statement prepared by a bank or other financial institution.

Pay statements – Taxpayers may have deductible expenses withheld from their paycheck, such as charitable contributions, union dues or medical insurance premiums. Be sure to keep year-end or final-pay statements as proof of payment of these expenses

Health Insurance documentation – While the IRS does not require taxpayers to submit documentation of health coverage with their tax returns, gathering documents in advance will help return preparation at tax time. Beginning with records for tax years 2014, taxpayers should keep insurance cards, explanation of benefits statements from their insurer, W-2 or payroll statements reflecting health insurance deductions, records of advance payments of the premium tax credit and other statements indicating that they or a family member had and maintained health care coverage.

If claiming the premium tax credit, taxpayers will need information about any advance credit payments received through the Health Insurance Marketplace, the type of coverage obtained at the Marketplace, the premiums paid, and the months covered.

If the taxpayer or any of his or her family members are granted a coverage exemption from the Marketplace, they will receive a notice from the Marketplace with their Exemption Certificate Number. Taxpayers should keep this notice, along with any other documentation to support an exemption claimed on the tax return. Find more information on Gathering Your Health Coverage Documentation page on

If a taxpayer has employees, they should keep all employment tax records for at least four years after the tax becomes due or is paid, whichever is later.

Create an Electronic Additional Set of Records

Emergencies can happen anytime. By keeping a duplicate set of records including bank statements, tax returns, identifications and insurance policies in a safe place and away from the original set, taxpayers ensure protection of their records. Keeping an additional set of records is easier now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet. Even if the original records are only provided on paper, these can be scanned into an electronic format.

Find more information on this and other tax related subjects on

Payments to Independent Contractors

Payments to Independent Contractors

FS-2015-21, August 2015

The Internal Revenue Service reminds employers to correctly determine whether workers are employees or independent contractors.

Generally, employers must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to employees. Business owners do not generally have to withhold or pay any taxes on payments to independent contractors.

Determining Whether the Individuals Providing Services are Employees or Independent Contractors

Before a business can determine how to treat payments for services, they must first know the business relationship that exists between the business and the person performing the services. The person performing the services may be –

Common Law Rules

Facts that provide evidence of the degree of control and independence fall into three categories:

  1. Behavioral: Does the business owner control or have the right to control what the worker does and how the worker does his or her job?
  2. Financial: Are the business aspects of the worker’s job controlled by the business owner? (these include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  3. Type of Relationship: Are there written contracts or employee type benefits such as pension plan, insurance or vacation pay? Will the relationship continue and is the work performed a key aspect of the business?

Form SS-8

If, after reviewing the three categories of evidence, it is still unclear whether a worker is an employee or an independent contractor, Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (PDF) can be filed with the IRS. The form may be filed by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker’s status.

Be aware that it can take at least six months to get a determination, but a business that continually hires the same types of workers to perform particular services may want to consider filing the Form SS-8 (PDF). There is no fee for requesting an SS-8 determination letter.

Employment Tax Obligations

Once a determination is made (whether by the business or by the IRS), the next step is filing the appropriate forms and paying the associated taxes.

Misclassification of Employees

Consequences of Treating an Employee as an Independent Contractor

If a business classifies an employee as an independent contractor and they have no reasonable basis for doing so, they may be held liable for employment taxes for that worker and the relief provisions, discussed below, will not apply.

Relief Provisions

If a business has a reasonable basis for not treating a worker as an employee, they may be relieved from having to pay employment taxes for that worker. See Publication 1976, Section 530 Employment Tax Relief Requirements (PDF) for more information.

Misclassified Workers Can File Social Security Tax Form

Workers who believe they have been improperly classified as independent contractors by a business can use Form 8919, Uncollected Social Security and Medicare Tax on Wages to figure and report the employee’s share of uncollected Social Security and Medicare taxes due on their compensation. See the full article Misclassified Workers to File New Social Security Tax Form for more information.

Voluntary Classification Settlement Program

The Voluntary Classification Settlement Program (VCSP) is an optional program that provides taxpayers with an opportunity to reclassify their workers as employees for future tax periods for employment tax purposes with partial relief from federal employment taxes for eligible taxpayers that agree to prospectively treat their workers (or a class or group of workers) as employees. To participate in this voluntary program, the taxpayer must meet certain eligibility requirements, apply to participate in the VCSP by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS.

Page Last Reviewed or Updated: 19-Aug-2015

Scam Phone Calls

The IRS continues to warn consumers to guard against scam phone calls from thieves intent on stealing their money or their identity. Criminals pose as the IRS to trick victims out of their money or personal information. Here are several tips to help you avoid being a victim of these scams:

  • Scammers make unsolicited calls.  Thieves call taxpayers claiming to be IRS officials. They demand that the victim pay a bogus tax bill. They con the victim into sending cash, usually through a prepaid debit card or wire transfer. They may also leave “urgent” callback requests through phone “robo-calls,” or via phishing email.
  • Callers try to scare their victims.  Many phone scams use threats to intimidate and bully a victim into paying. They may even threaten to arrest, deport or revoke the license of their victim if they don’t get the money.
  • Scams use caller ID spoofing.  Scammers often alter caller ID to make it look like the IRS or another agency is calling. The callers use IRS titles and fake badge numbers to appear legitimate. They may use the victim’s name, address and other personal information to make the call sound official.
  • Cons try new tricks all the time.  Some schemes provide an actual IRS address where they tell the victim to mail a receipt for the payment they make. Others use emails that contain a fake IRS document with a phone number or an email address for a reply. These scams often use official IRS letterhead in emails or regular mail that they send to their victims. They try these ploys to make the ruse look official.
  • Scams cost victims over $23 million.  The Treasury Inspector General for Tax Administration, or TIGTA, has received reports of about 736,000 scam contacts since October 2013. Nearly 4,550 victims have collectively paid over $23 million as a result of the scam.

The IRS will not:

  • Call you to demand immediate payment. The IRS will not call you if you owe taxes without first sending you a bill in the mail.
  • Demand that you pay taxes and not allow you to question or appeal the amount you owe.
  • Require that you pay your taxes a certain way. For instance, require that you pay with a prepaid debit card.
  • Ask for your credit or debit card numbers over the phone.
  • Threaten to bring in police or other agencies to arrest you for not paying.

If you don’t owe taxes, or have no reason to think that you do:

  • Do not give out any information. Hang up immediately.
  • Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page. You can also call 800-366-4484.
  • Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on Please add “IRS Telephone Scam” in the notes.

If you know you owe, or think you may owe tax:

  • Call the IRS at 800-829-1040. IRS workers can help you.

Phone scams first tried to sting older people, new immigrants to the U.S. and those who speak English as a second language. Now the crooks try to swindle just about anyone. And they’ve ripped-off people in every state in the nation.

Stay alert to scams that use the IRS as a lure. Tax scams can happen any time of year, not just at tax time. For more, visit “Tax Scams and Consumer Alerts” on

Estimates due

Final estimates for 2016 are due January 15, 2016.  We recommend state estimates be sent in by December 31, 2015 so that expense can be included on your Schedule A for 2015.

Identity Theft

Many individuals are experiencing Identify Theft with the Internal Revenue Service.  If you are a victim, please complete Form 14039, Identify Theft Affidavit follow instructions on the back of the form.  Call 1-800-908-4490 which is the IRS Identity Theft Protection Specialized Unit.


Request a Transcript of Copy of a Prior Year Tax Refund

Request a Transcript or Copy of a Prior Year Tax Return

You may need copies of your filed tax returns for many reasons. For example, they can help you prepare future tax returns. You’ll need them if you have to amend a prior year tax return. You often need them when you apply for a loan to buy a home or to start a business. You may need them if you apply for student aid. If you can’t find your copies, the IRS can give you a transcript of the information you need, or a copy of your tax return. Here’s how to get your federal tax return information from the IRS:

• Transcripts are free and you can get them for the current year and the past three years. In most cases, a transcript includes the tax information you need.

• A tax return transcript shows most line items from the tax return that you filed. It also includes items from any accompanying forms and schedules that you filed. It doesn’t reflect any changes you or the IRS made after you filed your original return.

• A tax account transcript includes your marital status, the type of return you filed, your adjusted gross income and taxable income. It does include any changes that you or the IRS made to your tax return after you filed it.

• You can get your free transcripts immediately online. You can also get them by phone, by mail or by fax within five to 10 days from the time IRS receives your request.

– To view and print your transcripts online, go to and use the Get Transcript tool.
– To order by phone, call 800-908-9946 and follow the prompts. You can also request your transcript using your smartphone with the IRS2Go mobile phone app.
– To request an individual tax return transcript by mail or fax, complete Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript. Businesses and individuals who need a tax account transcript should use Form 4506-T, Request for Transcript of Tax Return.

• If you need a copy of your filed and processed tax return, it will cost $50 for each tax year. You should complete Form 4506, Request for Copy of Tax Return, to make the request. Mail it to the IRS address listed on the form for your area. Copies are generally available for the current year and past six years. You should allow 75 days for delivery.

• If you live in a federally declared disaster area, you can get a free copy of your tax return. Visit for more disaster relief information.

Tax forms are available 24/7 on You can also call 800-TAX-FORM (800-829-3676) to get them by mail.