Record Keeping – For People Who Hate Record Keeping

Most of my clients hate record keeping and for the most part don’t know how to keep records. Here are the things that we see most often:

  • People who don’t keep ANYTHING - they come to us with virtually nothing to work with and are convinced that we can “pull up” the information (no one can “pull up” your tax documents or other records; you have to do that yourself)

  • People who come in with their bank statements and little else

  • People who bring in their W-2 forms and nothing else

None of these record keeping “systems” work well

A tax return is only as good as the information on which it is based. Without information about what you did that is or might be deductible, you won’t be getting the best results. The fewer valid deductions you have, the higher the tax bill.

Step One - keep EVERYTHING that you receive from the IRS

When you get something from the IRS, there is probably a time deadline set out in the letter. Two things you can do with that - open that puppy up, read it, freak out and call to ask what to do or - open it up, scan all of the pages, drop it into your client portal and send us an email telling us you have an IRS notice, please tell you what we have to do.

The second method is less stressful.

Step Two - use a single credit card for all business expenses, and a different one for all deductible personal expenses

Using a card for a single purpose allows us to use it for substantiation of expenses without opening you up to questions about other things you did with your money.

Each month, you can get a PDF statement on your account. Easiest thing for you to do - every couple of months, download those statements and stick them into your client portal.

Step Three - use a mileage tracker app on your phone

I recommend Mile IQ. Once a month or so, characterize your trips much like you would on Tinder - swipe one direction for “business miles” and the other for “personal”. You can set certain trips as being always one or the other, for instance, a trip between your home and your office is going to be “commuting”, therefore “personal”. Reduces the number of swipes. At the end of the year, download the PDF report and stick it into the portal.

Step Four - download your bank statements AND CHECK IMAGES

This is something you will need to do at least every 60 days, as some banks only keep online statements for 90 days.

Having your bank statements is easy to understand, but the check images are just as important. I have a client’s file on my desk with 24 months of bank statements, twenty to forty checks written a month and no idea to whom they were drawn or why. Check images are important to getting the best results.

Step five - scan EVERY receipt you intend to keep

Most receipts are now printed on thermal paper, which fades completely within six months. Scan those puppies. You can do it with your phone. Write on the receipt what it’s for if it’s not clear before you scan it. Stick the scans in the portal.

Step six - keep EVERY document that comes with this on the envelope

“IMPORTANT TAX DOCUMENT INSIDE”. Keep every single one of those, because you actually have to have them to electronically file an accurate return. Scan them and stick them in your client portal.

Benefits –

  • Save money - showing up with just your bank statements, or with a trash bag of loose paper that needs to be sorted and categorized is going to cost you a LOT. Just having to figure out a client’s tax year from a big bag of loose paper can cost $2,000 or more

  • Get better results - having better records means you’ll get all of the deductions that you’re entitled to take

  • Have everything where you can find it - using our free, secure, IRS compliant client portal to keep your financial records, tax related documents and any other important records allows you 24/7 access. No more hunting for something.

  • Reduce your stress level - each year, I watch as clients go through having to reconstruct their tax year, digging through emails, paperwork, calling different vendors and companies. The clients are frustrated and this makes tax time something to dread.

One thing you probably didn’t know - not keeping records can actually be used against you if you’re summoned to appear before the IRS for not filing, or for inaccurate filing. Not keeping records is one element of a possible charge of tax fraud - so there’s another reason to adopt a new record keeping system.

You don’t have to become a diligent fan of record keeping; you can easily catch this up once every sixty days or so - it will also help you keep better track of spending and trends that will support your reaching your goals more effectively. Our clients can request a bi-monthly reminder notice to get those records caught up and into the portal.

Need access to our client portal? Give us a call at 713-893-7348.

Coming next - how to reconstruct records when you’ve had a disaster, a move or just by some accident don’t have those records you need.

Greg Melon