Taxes Made Easier

When it comes to preparing taxes, many find the act of sorting and categorizing expenses the most time consuming job of all. So why not simplify? Personal finance sites like Mint.com and Buxfer offer automatic categorization, tagging and sorting for all your financial transactions throughout the year. This makes tax preparation a whole lot easier come April.

For example, when you sign up to use Mint.com, you securely link your credit card and bank accounts to your Mint.com account. Mint then automatically categorizes your transactions on those accounts, allowing you to personalize and edit the categories as you wish. This is especially useful for tagging tax-related expenses and income.

If you’re concerned about having your personal data stored on the servers of a third-party site like Mint.com, Buxfer offers an alternative. It stores login information and credentials on your own computer, and then syncs the data collected with the Buxfer servers when you log on.

Tagging and categorizing all your transactions makes it possible to perform quick searches during tax time; look for items such as health care expenses, un-reimbursed business expenses, contributions to your IRA, or interest you’ve earned on your accounts and investments. You can then create reports of the activity for specific categories, and export those reports to an Excel spreadsheet which can be sent to your tax preparer.

Remember though, you must keep a written record of your receipts for three years from the date your return was filed. Today, the IRS allows people to prepare, record, transfer, index, store, preserve, retrieve, and reproduce receipts electronically. An extra precaution, some folks even scan their printed receipts for preservation.

Here’s what the IRS says about record keeping in Publication 463 (2009), Travel Entertainment, Gift and Car Expenses. Click here for the full publication.

You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement. You must generally prepare a written record for it to be considered adequate. This is because written evidence is more reliable than oral evidence alone. However, if you prepare a record on a computer, it is considered an adequate record.

Documentary evidence will ordinarily be considered adequate if it show the amount, date, place and essential character of the expense.”

If you are unsure about whether or not you can claim an expense, you should speak to a professional tax preparer or advisor. We’ve included below a table taken from the IRS Publication 463 (2009) that shows what you must expense and the kind of details you should keep for each element.

Happy tax planning and good luck!

Publication 463 (2009), Travel Entertainment, Gift and Car Expenses
Table 5-1: How to Prove Certain Business Expenses