Whether you have your taxes done or you are about to have them done, you are probably wishing you had kept better records. Good record keeping can alleviate a lot of tax time drama. And keeping good records of your expenses can save you money at tax time.
So let’s talk about some basic ideas for keeping track of your expenses. There are many systems out there, but the most important thing is to have a system that you understand. If you get audited the burden of proof is on you. If you understand how you kept track of your expenses, it will be much easier to explain it to an auditor if necessary.
The first step to developing your own system is to understand what a receipt is. A receipt is anything that proves you spent money and what you spent it on. Of course the paper receipt you get when you purchase an item at a store is a receipt. But other things that can be considered a receipt include cancelled checks and your bank account statements, which show your debit card transactions. Credit card statements are also considered receipts. Also, a statement from any place you have an account with is a receipt. If you have a business, your suppliers often keep track of your purchases and can provide you with a statement listing your purchases, which function as a receipt. And what do you do with all those receipts? You need to keep them where you can find them easily at tax time. Develop a storing system that works for you.
It’s also good to track your expenses in a software program or a paper ledger. If you are computer savvy, there are programs that you can purchase to record your transactions. For a business, QuickBooks has programs on different levels that would be appropriate and that are reasonably user friendly. However, QuickBooks does require a basic knowledge of accounting, but there are classes that you can take to help you. For your personal finances, Quicken is a friendly program that can help you track not only your income and expenses, but it can help you balance your checkbook and track loans, credit cards, and investments. If you plan to use a computerized program, the biggest problem we see is that people don’t take the time to enter their receipts into the program. But if you do it on a regular basis, it can be a great tool for you not only at tax time but throughout the year, and you can see exactly where your business and finances are.
We hope this gives you an idea of where to start keeping track of your expenses. Of course there is always more to learn, so check out our other resources at www.avoidbeingaudited.com.