may have a different allowable IRA deduction. So you might have a tax basis for the state. (More details in Chapter 11.)
Tip #9:
Keep tax preparation records for at least six years. That means all the cancelled checks, receipts, and records that were directly used in the preparation of your tax return. This should include copies of all your notes, work papers, and correspondence with your tax professional or tax software company. Keep them with a copy of the tax return, so if you’re ever audited, everything is right there, right at hand.
TaxMama’s Recordkeeping Law of the Universe:
You won’t need to look at most of your records for years. But as soon as you throw something out—you will need it desperately.
Tip #10:
The benefits of mobile applications:
• They let you scan documents, checks, and receipts on the spot and let you upload them to your application instantly instead of spending your entire evening tediously entering data into a traditional print or electronic system. Yawn.
• They generally integrate with other tools to help you organize the data—or to have someone else organize the data for you (like Shoeboxed.com).
• The information can be stored in the Cloud, so you don’t need to worry about losing the data, fires, messy desks, and so on.
• When the documents are linked to specific lines in your books and records, you are creating an “audit trail.” That means if the IRS or state wants to see the receipt for a particular deduction (or category of deductions), you can just click and give it to them or print out the all the data in the category.
• Some of them will use GPS to track your mileage for each driving incident, allowing you to categorize the trip as personal, business, medical, moving, or charitable mileage. Others will require manual entries for each trip.
Tip #11:
The drawbacks of mobile applications:
• A warning about free apps—read the contract information carefully. You will learn that you generally don’t own your data. They can shut down the app at any time. Think about this: If they aren’t getting paid, how can they afford to keep providing your free service? What are they selling to get the funds to keep their doors open? Are they selling your data to advertisers? Is there a paid upgrade? What about the security of your private information, especially when you link these free apps to your bank accounts and brokerage accounts? Do they have access to your financial usernames and passwords? Who owns and/or creates the apps? Do they have deep pockets to compensate you or help you in the event of identity theft?
• Security—Some of the data are often also stored on your mobile device. You don’t generally have it password protected when you use it all day. So the data are at risk. If your device is lost or stolen, you must scramble to change all the passwords on all your accounts immediately.
Tip #12:
These are some of the top applications available to you for recordkeeping and mileage (listed in alphabetical order, not by preference):
DeductR: http://deductr.com
Expensify: https://www.expensify.com
FreshBooks: http://www.freshbooks.com
MetroMile’s mileage app: https://www.metromile.com/technology
Tip #13:
These are some of the top personal recordkeeping systems that provide full bookkeeping (listed in alphabetical order, not by preference). Many apps are designed to integrate with these systems:
Mint: https://www.mint.com
Outright: http://outright.com
QuickBooks: http://www.quickbooks.com/App
Quicken: http://www.quicken.com/stay-connected-your-money
Shoeboxed: https://www.shoeboxed.com
Note: Of course you can use Excel if you know how. But if you don’t already know how to use Excel, an app might be a better choice.
Tip #14:
Not everyone lives in the Cloud. Some people still like the feel, texture, and smell of good, old fashioned paper. Here are some paper alternatives for folks who still like the tangible feel of paper records:
Tax MiniMiser is a system with sets of monthly envelopes to hold all your receipts, invoices, and documents—and where you can record all money you receive and money that you spend. Of all the paper systems, the Tax MiniMiser is the newest one, designed right around the turn of this century (2000) by Bob Whitaker after he got tired of being audited repeatedly. (All the other systems have been used for fifty to one hundred years or more.) http://taxminimiser.com.
Dome Record Books have books for a variety of industries that include bookkeeping information, bank reconciliations, payroll record, or whatever you need. http://www.domeproductsonline.com/dome-books.
Wilson Jones has been producing columnar pads and binders in many shapes and sizes since 1893. You can design your own journals and ledgers based on the information you need to track. Pair these pads with loose-leaf notebooks and a set of tabs, and voila! You have your own customized accounting system. http://www.wilsonjones.com/wj/us/us/s/2252/accounting-suppliesaspx.
SafeGuard One-Write Systems combines ledger sheets with carbon-backed checks and receipts. So each time you write a check or make a sale, the entry appears on your ledgers without having to copy it over. This is how I first learned bookkeeping and how to reconcile books. https://www.gosafeguard.com/business.
Accordion files can be paired with colorful labels, allowing you to customize your own filing system. Get a file with 24–31 pockets to store your receipts, invoices, and so on. Use a set with 12 pockets to store bank and brokerage statements. Or use the 12 pockets as a tickler file to remind you about monthly bills to pay, things to do, appointments or deadlines, or even birthdays and special occasions.
Should You Prepare Your Own Tax Return?
WHETHER YOU’RE A TAX Pushover, Tax Vigilante, or Tax Aware, the odds are better than 50-50 that you are among the 77 million plus Americans working with a tax professional. But another 70 million or so folks are doing it themselves. In many cases, where your financial life is straightforward and uncomplicated, you’re much better off preparing your own tax return. The IRS and all the major tax software companies even make free filing available for you. You will find two different free systems offered through the IRS right here: https://www.irs.gov/uac/Free-File:-Do-Your-Federal-Taxes-for-Free. Note: The main problem with these free services is