Keeping track of your expenses may allow you to save money at tax time. However, you must preserve records and evidence to support each spending and, if necessary, defend your deductions. To make taxes as simple as possible, follow these ideas for managing receipts and spending.
Checking in on your receipts and costs on a frequent basis is the greatest approach to keep track of them. This means you won’t be sat down to do your sole trader tax returns during tax season only to discover you need to search out months-old paperwork. Purchase color-coded folders to hold your receipts and documentation so that you can quickly locate the information you require. Among the folders you might find are:
- Receipts, electricity, gas, and water bills; house repairs, maintenance, and renovations; internet and phone bills are all examples of home and office expenses.
- Gas and gasoline bills; car repairs and maintenance; registration and license receipts; tires; rental or lease statements; personal and business miles traveled are all examples of vehicle expenses and mileage.
- Tuition, student fees, textbooks, and other essential equipment are all included in the cost of education.
- Child care expenses: pay stubs reflecting child care payments made through a work reimbursement account; receipts for child care provided while you were volunteering.
- Medical costs: premiums for you and your family’s health insurance; out-of-pocket costs.
- Moving costs; charitable gifts; tax planning and investment fees; work uniforms; uniforms and other work-only gear laundry or dry cleaning; business supplies (pens, paper). This category of expenses (moving, unreimbursed employee, tax/investment planning expenses) can be used as an itemized deduction for federal taxes through the 2017 tax year, up to 2% of your adjusted gross income. These 2% deductions are no longer allowed for tax years beginning in 2018 unless they constitute a business cost. Some states, continue to allow these expenses to be deducted.
To ensure that all of your deductions are accounted for, organize any new receipts from the preceding month into the appropriate folder.
This technique helps you keep track of your workload so you can organize and save your documents without feeling overwhelmed during tax season. It also allows you to put pertinent comments on your receipts while the information is still fresh in your mind, such as which customer you met at that soon-to-be-deducted power lunch.
Maintain both electronic and paper backups.
- Scanning your receipts and saving them as pictures or PDFs, or having them emailed to you if that’s an option
- Keeping electronic rent receipts is a good idea.
- Utility bills in PDF format can be saved.
- Before you place your receipts into long-term storage, check-in on the electronic documents you have as part of your routine check-in to ensure you have a digital backup of all of them.
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