Dividend Dollar asked recently what type of filing system I use to keep tracking of tax deductions. I have blogged on record keeping before when preparing your taxes. My essential point was that you do not have to unleash your inner librarian to be a good record keeper; planned chaos is ok as long as all your records of a certain type (credit card statements, bank statements etc.) are all kept in the same place and not all mixed into one.
I wanted to add a few addendum from my previous post.
Don’t rely on shoving everything in your wallet. Besides making your wallet unwieldy wide and heavy, many credit card slips are now printed on that slimy paper where the ink rubs off quickly. I noticed emptying out my wallet of old receipts that, in some cases, I could not longer even read the amount paid anymore on those slips.
Buy a letter tray with at least 3 trays (this is a slightly more organized filing system than my previous post) We started doing this at work since we were misplacing bills and/or receipts which often happens when you have a lot of people in an office and a lot of vendors. We placed a 3 level letter tray on our book-keeper’s desk. The receptionist puts all the bills to be paid on the top tray, the bank statements go in the middle tray and the receipts go on the bottom tray. When the bill is paid, the bank statements are reconciled or receipts duly noted, they are filed in folders (at work, there’s a large accordion folder for bills paid with folders inside for each vendor, there’s another large accordion folder for all tax related matters with folders inside for employee remittances, HST, corporate taxes etc. and finally an accordion folder with bank statements and reconciliation statements).
Open a “problem” book-keeping file. If you do not know whether an expense is tax deductible then create a problem file and put everything in there. If you use an accountant, you submit your normal supporting documents and the problem file asking if there is anything in there worth claiming (remember there’s a lot of deductions related to kids, education, support for parents so anything kid related should be kept).
Pick one day to be book-keeping day. I pay all my bills and file everything on Sunday. If all your records are in one place (see above) and you allocate the same time every week/bi-weekly/month to handle the paperwork underlying personal finance, it does not become a big scramble to find that bill.
Don’t beat yourself up if you lose a receipt. In this day and age, most receipts can be reproduced easily. If you have generally good record keeping but are missing an item or two, it is not the end of the world.
I wanted to finish with a final thought about record-keeping and taxes. In tax re-assessment or tax audit situations, many decisions go against the taxpayer not because the law works against them but because they fail to have the supporting documentation to prove the law is on their side.
The popular myth is that the government will have all your taxes filed on record. In many cases, the government do not have these records readily available or, more practically speaking, why would they provide you with documentation that undercuts their own argument that the deduction should be denied?
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- Is your accountant doing a good job?
