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Financial records: What to keep, what to toss
April 27, 2015 / 12:05 PM / in 3 years

Financial records: What to keep, what to toss

LOS ANGELES (Reuters) - (The author is a Reuters columnist. The opinions expressed are her own.) I don’t make New Year’s resolutions. Instead, I resolve every tax season to get a better handle on my paperwork — with mixed results. This year, I turned to three certified public accountants to find out what apps, software and strategies they use to keep track of everything.

A U.S. 1040A Individual Income Tax form is seen at a U.S. Post office in New York April 15, 2010. REUTERS/Mike Segar

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.

“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

Our Standards:The Thomson Reuters Trust Principles.
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