As the temperatures plummet into the upper 80’s and football shows up on TV again, that can mean only one thing – Fall is here!
And with the beginning of fall, it’s also an opportune time to begin organizing your documents for tax time.
Organizing your receipts, mileage, and other tax documents can save you time and money, especially if you hire someone to prepare your taxes. For example, let’s take a hypothetical business owner, Theodore, who owns and operates a small, online craft business from his home in Cypress, TX. He makes sure to keep all of his receipts and documentation, but they’re just thrown into a shoebox with no organization. Come tax time, he hands this box to his CPA; now his CPA will need to spend hours sorting and categorizing them all, often times needing additional information from Theodore – and he’ll be doing so while billing Theodore per hour. As you can see, a little effort into organizing early on can make a big difference later!
The first question you should ask yourself is: What level of technology are you comfortable with? If your answer is “not that much,” a few accordion folders to hold and categorize your documents should be sufficient. This is the simplest method, although the downside is that you’re still relying on paper documents that can be stolen or destroyed.
A small step in the technology direction would be scanning your documents to your computer. You’re less reliant on the paper document, and the files can be easily organized. A home computer is just as vulnerable to fire and theft as the paper documents would be, but overall, this is still an acceptable method.
For those comfortable with technology, using your cell phone with an app like Evernote can provide a superior solution. Any time you make a purchase, you can use your cell phone to take a picture of the receipt immediately, then add it to Evernote. You can then throw away the original, if you like. This reduces the risk of losing a receipt, especially those thermal receipts that have the bad habit of fading away after a few days! Also, with an app like Evernote, you can tag it with a descriptive label (i.e. Business Lunch, Kids Daycare, etc.) that will allow you to search for it easily.
Now that we have receipts and documents covered, how do we go about tracking mileage? Once again, there are low-tech and high-tech solutions. The method that is probably familiar to most is recording your mileage in a physical log book. While straightforward and simple, this method has some downsides (difficult to digitize, can be lost or destroyed, etc.). For a real timesaver, try an app like MileIQ. Using your smartphone, it logs your miles driven, and can even determine between personal and work mileage – in effect, becoming a FitBit for your car. All of this data is uploaded to your online account, keeping your records organized and at your fingertips.
Bottom line – the sooner you get organized, the better! In addition to making tax time easier and more affordable, being well organized can keep you from missing out on deductions as well. And for those who’re lucky enough to be selected for an audit: the better your records are organized and maintained, the more likely you are to be able to defend your deductions!