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If you don't already have one, go out and buy a fire-proof filing cabinet that comes with a lock and key. If you've hired a nanny, you're now the employer and you're going to have to keep copies of all your income tax records. Before you try to sort file folders by subject, you need to know what exactly you should be keeping copies of. The following is a list of forms and documents you should be keeping track of:
1) Copies of Schedule H (form 1040), which is for Household Income Taxes.
2) Related forms like W-2, W-3, W-4, and W-5.
3) Keep supporting records for the above mentioned nanny tax forms. This might include receipts, invoices, statements, etc.
4) A copy of the signed nanny work agreement.
5) Receipts for expenses directly related to housing a nanny (if she's a live-in nanny). This might include copies of your electric bill, phone bill, water bill, grocery bills, etc. Depending on where you live, you may be able to claim deductions for some of these. Check with the IRS for more information.
6) Keep a record of your nanny's social insurance number, name, address, and any other pertinent information, including (if necessary) a copy of her work visa.
The first step in complying with nanny tax deductions is setting up a filing system to keep everything in order. Keep your documents well organized and in a safe place. When it comes time to submit those nanny taxes, you won't be scrambling to find all of the paperwork.