Remember that Itemize keeps a digital record for 10 years of your receipts for tax compliance purposes.
It’s an all-too-familiar experience: With the deadline to file taxes slowly approaching, you start ransacking your home on a mad hunt to cull all those receipts from business trips, work lunches and any other necessary expenditure that might help you improve your chances of getting a refund from the IRS. Many find that itemizing every penny spent throughout the year is nearly impossible. Dedication to the plan to retain every receipt has waned — much like that New Year’s resolution to work out three days a week.
Experts say keeping receipts is still the best way to assess your annual spending accurately. The key to success lies in commitment to a system that makes it more like a daily habit than a chore.
“Consider collecting all the relevant data and creating a report of your activity once a month — perhaps when you sit down to pay the month’s bills.”
– Eric Chen, associate professor of business administration, Saint Joseph College
The big secret to keeping receipts is organization; that, experts say, along with conscious effort and a little time each day, can make itemizing expenses less challenging. Whenever you incur a valid expense, write the nature of the expense on the receipt and put it in an envelope when you get home, advises Eric Chen, an associate professor of business administration at Saint Joseph College in West Hartford, Connecticut. Chen holds a master’s degree in accounting and taxation from the University of Hartford.
Dedication is the hard part, Chen says, but simplifying the process will help ease the burden and increase the rewards during tax season. One way to do that is to create storage spaces at home, in your car and at work where you may file receipts as you spend money. Something as simple as a shoe box or as sophisticated as a three-ring binder with plastic sleeves can work. Chen says it’s important to make a habit of labeling each receipt when you tuck it away for safekeeping so you can remember the nature of the expense.He suggests taking time periodically to transfer the expenses from receipts to a comprehensive spreadsheet. “Consider collecting all the relevant data and creating a report of your activity once a month — perhaps when you sit down to pay the month’s bills,” Chen said. “Tabulating a month’s activity isn’t as bad as doing it for a year. By the time crunch time comes around, you’ll be ready to roll.”
Easy said, easy done
In theory, getting organized about keeping your receipts sounds easy. But is it? And, is it really that beneficial? Yes, according to Catherine Fiehn, a Milford, Connecticut-based photographer and entrepreneur. Fiehn keeps an envelope tucked in the passenger seat of her car for all her food and toll purchases, a box at her home and a special drawer at her office, right next to her desk. She also keeps a file on her computer, and digitally stores receipts from online spending.
“It is all about having an easily accessible place to put them so you use it,” Fiehn said. Make a simple plan that you can live with, she advises.
“If you have to open a file cabinet and search for a file, or do not have a spot at all, then you probably won’t stick with it,” she said.
Collecting receipts for itemization at tax time has shown Fiehn how quickly all the little things can add up. “You don’t have a grip on your true expenses if you can’t add it all up at the end of the year,” she said. “If you are paying taxes on income that you really didn’t make because you haven’t deducted your true expenses, then you are sabotaging the longevity of your business.”
Digital help in the digital age
Maybe stuffing receipt slips into boxes or desk drawers and then drafting spreadsheets to calculate your monthly spending takes time you just don’t have on a daily basis. You’re always on the go. Well, several companies have products that can help you manage receipts with just a few clicks of your mouse — or camera phone.
Shoeboxed.com has given small business owners and taxpayers an easy and convenient way to stay organized. Just send your receipts, and Shoeboxed will upload them into a personalized online database.
“What we tell customers is that we will accept receipts or any other documents any way you can get them to us,” said Jake Brereton, marketing manager of Shoeboxed.com. “You can send physical documents, you can take pictures of documents and put them into the uploader, you can send documents with your scanner and e-mail them — really anything.”
Lemon.com offers a similar service, but in a more simplified format. All its customers need is a smartphone with the ability to take pictures of their receipts. Through the service’s mobile application, users upload their own data directly into their accounts for safekeeping. Online shoppers may even have their receipts emailed directly to their Lemon accounts as well.
Philadelphia-based NeatReceipts offers computer software and a mobile scanner — called Scanalizer — that allow you to computerize your receipts at home.
Personal finance tools like Intuit’s Mint.com and Quicken offer simple solutions for tracking and categorizing your spending to make things easier at tax time. Many small business owners also use QuickBooks accounting software to easily track income and expenses. Many of these tools will export reports or can transfer data directly into software like TurboTax, to make tax time even easier.
Receipts: To Collect or Not to Collect?
When preparing their annual income tax returns, filers may take a standard deduction or itemize their expenses. For the 2016 tax year, the standard deduction is $6,300 for single taxpayers and $12,600 for those who are married and filing jointly.
If you opt for the standard deduction, retention of your receipts is not important for tax purposes. “You would only choose to itemize if your deduction after itemization is greater than the standard deduction,” said Eric Chen, associate professor of business administration at Saint Joseph College in West Hartford, Connecticut. “However, by choosing the itemization route, the onus is on you, the taxpayer, to keep good records in order to prove, or substantiate, your expense as valid.”
And that’s where being able to fan through your receipts to tally up all your deductible expenses at the end of the year comes in handy.