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 Kelley Long, a Chicago CPA and personal financial specialist, tries
to generate as little paperwork as possible, opting for electronic
records instead.
"The IRS accepts electronic records," said Long, resident financial
adviser with Financial Finesse in Chicago. "There's no need to keep
paper. That's the one thing they're modern about."
Long keeps a folder on her computer desktop for the current year's
tax documents. If a document comes to her in paper form, she scans
it, saves it in the folder and shreds the original. She converts
emails documenting charitable contributions and other tax-related
expenses into PDF files by choosing the "print" function and then
"save as PDF."
Long saves copies of her calendar to help corroborate
business-related travel, meetings and other costs. At the end of the
year, she downloads her bank and credit card statements into the
folder.
Banks and brokerages are required to keep those records for at least
six years — the longest someone is likely to need them for an IRS
audit. But some financial institutions charge fees to access older
statements, and not all credit card companies make the documents
readily available, so Long opts for the once-a-year download.
Even taxpayers who cling to paper should start scanning their
receipts because the ink can fade quickly, rendering them useless in
an audit. Long marks each receipt with the relevant information,
such as the people present and what was discussed — "the who, what,
where, when and why," she said. She then scans it into her system
and shreds the original.
Finally, Long maintains a spreadsheet where she logs each
business-related expense. Software such as Quicken or QuickBooks can
perform a similar function, but she prefers the simplicity of a
spreadsheet. She also has the Expensify app on her phone to record
receipts and other business-related expenses on the go.
Long backs up her records using an external hard drive, but suggests
services such as DropBox or Syncplicity for people who want a
cloud-based service that allows them to access their records from
different locations and devices.
ShoeBox is another app that can help people keep their tax records
together. Clare Levison, a certified public accountant in
Blacksburg, Virginia, warns against spending too much time trying
out different apps, especially if the learning curve is steep.
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"If it's not relatively easy, then it defeats the purpose," said
Levison, author of the book "Frugal Isn't Cheap: How to Spend Less,
Save More, and Live Better." "You need to come up with a system that
works for you, that saves you time and that you'll actually use on a
regular basis."
Levison uses a flash drive and Microsoft Cloud for her backups,
while CPA Leonard Wright of San Diego recommends Box as a more
secure alternative to DropBox.
One app that Wright — who survived four consecutive audits by the
IRS — swears by is MileIQ, which automatically tracks the miles you
drive based on your phone's GPS. Each trip shows up separately in
the app, and users simply swipe left or right to classify each as
business or personal.
"We all get busy and you forget to track everywhere you go," said
Wright, a personal finance specialist who typically drives more than
70,000 miles a year for his job as a financial adviser with
Northwestern Mutual. "This does it for you. It's effortless."
Absent an audit, the only records people really need to keep in
physical form are the ones that are a hassle to replace and for
which originals may be required, such as birth, death and marriage
certificates, Levison said.
Otherwise, look for ways to replace paper with digital copies,
opting for electronic statements and receipts when possible.
"I like to have that piece of paper never generated to begin with,"
Levison said. "That way you don't have to worry about taking care of
it afterward."
(Editing by Lauren Young and Dan Grebler)
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