Now that your tax return has been filed, it is a good time to ensure you have proper documentation to substantiate your tax deductions, in the instance you are examined by the tax authorities. This is important as many banks start deleting online documentation that is more than a year old. Background The use of paper checks is changing dramatically over the past ten years. This shift has greatly reduced the ability to have a canceled check as proof when the auditor comes calling. This is due to more people using credit cards, digital currency, and the advent of online bill paying services. With online bill paying, your only receipt is often just an entry in your checking account. And current laws allow banks to digitally capture checks and then destroy the paper copy without returning it to you. So what do you do if you need proof that you paid for a tax deductible item? Know what the Tax Authorities are looking for Proof of a deduction typically requires two things: An invoice or proof of the transaction. This comes from the organization your activity is related to like a church or charitable organization and is dated and detailed enough to show what the transaction entailed. Proof of payment. This is where the check or detailed proof of payment is required. Some Tips Know your bank. Understand what your bank keeps and for how long. This includes digital statements and digital copies of checks (both front and back). Understand if there are any fees charged if you need to request copies of payments. Retain copies of all bank statements. Review your records to ensure you have copies of all monthly bank statements. This is often the starting point for an IRS agent that wants proof of payment, so it should be yours as well. These copies may be in either paper or digital format. Download online copies of your statements and place them in a password protected file. Collect copies of tax-related proof of payment. Go through your statements and mark the payments that will, in all likelihood, be used as a tax deduction. Make sure you have copies of the front and back of each of these payments. If you do this work now, the copies are often still available online for no fee. Even online bill payments often have a digital copy that can be used. Get independent acknowledgements. If you have larger payments you should also make sure you have independent acknowledgement from the merchant or organization to substantiate the deduction. This is true for charitable contributions of $250 or more, and any business or medical expenses.  While having the traditional proof of an expenditure is now harder to come by, the IRS and State tax authroties understand that and are aware technologies are changing the type of substantiation available for them to review. Retain documentation throughout the year that will support your transaction. This will save you a lot of headaches should you ever need to prove your deductions.

In an effort to keep taxpayers from transferring wealth from one generation to the next tax free, there are specific limits to the amount of gifts one may give to any one person each year. Amounts in excess of this limit are subject to filing an annual gift tax form. For most of us, this is not something we need to worry about, but if handled incorrectly it can create quite a surprise when the tax bill is due. The Gift Giving Rule You may give up to $19,000 to any individual (donee) within the calendar year 2026 and avoid any gift tax filing requirements. If married, you and your spouse may transfer up to $38,000 per donee. If you provide a gift to your spouse who is not a U.S. citizen, the annual exclusion amount is $175,000 for 2026. Gift Tax Reporting Amounts given in excess of this annual amount are subject to potential gift tax reporting. The amount of tax is currently unified with estate taxes with a maximum rate of 40%. The donor of the gift is responsible for paying any associated tax. When you exceed the annual gift giving amount, this triggers the need to file a gift tax form with your individual tax return. The excess gift amounts are rolled against your lifetime unified credit. If your lifetime gifts do not exceed the credit you may not have additional taxes owed. Here are some instances when a gift tax return may occur and ways to manage the problem: Gifts for college . Grandparents like to help out with the tremendous expense of funding a college degree and amounts donated can quickly surpass the annual gift threshold. To avoid the gift tax problem consider making payments directly to the college as this form of payment can be excluded from the annual gift giving limit AS LONG AS the funds are not used to pay for books, room or board on behalf of the donee. Be careful with 529 plan funding. If your children are anticipating going to college, many consider creating a 529 college savings plan. You may then fund the savings plan for, have someone else fund it, or on behalf of your child. However, remember the deposits into 529 accounts are considered a gift and are subject to the annual gift giving limits. Gifts to cover medical expenses. It’s very easy to mount up a large medical bill. While you may want to step in and help out by giving money to the individual with the medical bills, you may be creating a gift tax obligation. The better option may be to make payments directly to health care providers for medical services on behalf of the patient to avoid gift tax exposure. Gifts to help make a down payment. It is becoming more common to have family members help their kids with the down payment on a first home. This can be tricky. Lenders will look for event deposits in bank accounts and ask the prospective buyers to substantiate the source of funds. Providing the funds as a loan may disqualify the couple from taking on a mortgage. Even worse, if the purchasing couple claims the funds are a gift, this action may create a gift tax obligation to the person providing the funds. Gift of real estate . If you give property to a relative for little or nothing in return, this generates the need to file a gift tax form as well. Recent IRS studies suggest more than 50% of taxpayers fail to declare property transfers as gifts. Other things to consider You may provide gifts to or receive gifts from ANYONE. There are no limits or restrictions on who you may give a gift to or who may provide a gift to you. Creative gift giving can be a useful tool to help someone in need without creating a tax obligation. Do not give a lump sum gift for the maximum amount. If you provide a gift for the maximum allowable to an individual, you may not provide any other gifts to this person during the year, or else the event will be deemed excess gift giving and require filing a gift tax form. For example, a grandmother gives $19,000 to her granddaughter for college. She also pays for a vacation trip to send the family to Disney World and provides a wonderful birthday gift. The additional gifts are technically in excess of the annual limit and would present a gift tax event. The IRS is paying attention to the massive non-compliance in the timely filing of annual gift tax forms. So much so, that it's actively researching property transfers in key states to ensure the gift tax filing is taking place. What this means for you You may never encounter a need for this tip, but if you do AND you are unaware of this tax law, your tax life can get complicated quickly. Your main takeaway? Identifying when to ask about filing the gift tax form.