The easiest way to master record-keeping is to hire a tax agent who can help you keep your files in order. However, if you want to take personal ownership over your tax records, there are a few things you can start doing today to make your life (and your accountant’s) much easier. The following five tips will give you the foundation you need:
Keeping receipts involves more than just throwing a bunch of physical receipts and invoices into a cluttered drawer or filing cabinet. Instead, you should store physical and digital records of everything you buy and sell. This evidence can include business purchases like laptops, keyboards, chargers and stock. It could also include proof of hospital expenses to account for a large expenditure or a written receipt by a contractor who fixed your office toilet. Any money you earn or spend that may be relevant to your taxes must be documented digitally.
How long must you keep your receipts and other tax records? The answer can range anywhere from two to seven years, depending on the nature of the document. So, refer to the directions given by the IRS to ensure you comply with the record-keeping rules.
In addition to storing all relevant tax documents, you must ensure your business and personal records are kept separate. This is required by the IRS, but it will also make things a lot easier for you when tax time comes. So, use multiple folders, envelopes, and labels to distinguish your personal expenses from your business expenses.
Statistics tell us that most people use a budgeting app once a month, and some even use theirs once a day. If you’re a fan of app-based financial management, you may be interested in experimenting with apps dedicated to bookkeeping, business accounts and more. There are plenty of platforms available to suit any financial need, so check out a few to find one that makes tax record-keeping that little bit easier. Just be sure to stick with the official Google or Apple app stores to avoid downloading a malware-laden app.
The average office worker uses around 10,000 sheets of paper every single year. Putting environmental issues aside, paper is far from the ideal way to store your tax records. It’s prone to fading and vulnerable to human error (e.g. getting accidentally ripped or thrown away). Then, of course, there’s the potential for damage from flooding, pests, fire, and other environmental factors. It has to be protected in deep archive storage, away from direct sunlight, in protective boxes or cabinets to have a chance of survival.
So, when managing your tax records, digitize all documents and keep them in encrypted files. Back your files up in the cloud and, if you’re extra cautious, on a hard drive. That way, if any of your paperwork is damaged, you can still access it at the click of a button.
A third of Americans file their taxes at the very last minute, and 22% of those people do so because they find the process too stressful. One way to avoid that stress is to keep up-to-date with your record-keeping throughout the year. This eliminates last-minute panic, and you’ll be ready to roll when the time comes to file.
Put these tips into action, and you should find tax record management far easier in the future.