Nobody looks forward to filing their taxes, but unfortunately it is one of those inevitable tasks that we all must push through every year. As if filing taxes wasn’t a big enough pain, keeping receipts, charitable deductions and various expenses organized for 12 whole months would give anyone a headache. As big of a nuisance as it may be, keeping tax documents organized throughout the year is an important step in financial risk management and in reducing the likelihood of an audit by the IRS. Three ways to better manage receipts year round to make the tax preparation process a little easier are:
- Keep Receipts – The best way to lower financial risk and keep the IRS at bay is to hold on to receipts. Large businesses, small businesses and individuals are all at risk of being audited by the IRS, and not having proof of purchases and various expenses that were claimed on tax returns is a big red flag. Simply storing all receipts throughout the year can save a person or business from a serious investigation.
- Scan Receipts – Unfortunately, keeping receipts throughout the year isn’t always enough. The IRS can go back as far as six years in the books of an individual or a business. Therefore, it is important to hold onto receipts for six years before discarding them. An obvious problem with this is that keeping paper files can take up a lot of space, and the ink on receipts tends to fade pretty quickly. To avoid the need rent extra storage and keep records in good condition, it is a good idea to scan receipts and keep them in a file on the computer.
- Take Notes – There is a fine line that divides expenses that are eligible tax write-offs and expenses that are not. This is especially true for businesses that often work with clients outside of normal business hours, such as taking them to dinner or other types of entertainment. A great way to keep track of these business expenses it to write a note on the back of the receipt describing what the expense was related to.
Keeping organized records is critical for lowering financial risk and ensuring that taxes are filed properly. For those who have a difficult time with organization, seeking tax services from a professional tax accountant never hurts.