It’s an overused cliché in movies: a client arrives at his accountant’s office and dumps a shoebox full of receipts on the desk, fistfuls of white paper spilling over the sides. If you regularly keep receipts and documentation for tax write-off purposes, this scene may sound familiar. But it doesn’t have to be—much of our daily business has gone virtual, with loan statements, bank statements, credit card accounts, and even tuition bills delivered via email or on a secure server online.
Interested in going digital? Here’s what you need to know.
Invest in a good scanner.
The IRS was actually ahead of its time when it began accepting scanned receipts in 1997, in a rule called Revenue Proclamation 97-22. But the documents need to be legible, clear, and easy to access—which means that if your receipt is bunched, blurred, or otherwise illegible on your screen, it will likely be rejected, or the IRS will ask you to produce the hard copy instead. Take your time to scan, save, and back up your receipts or other paperwork as they come in, and use a scanner that is easy to operate and provides clear, good quality images.
Know what to keep and what to shred.
Knowing what papers you need to keep around and which ones you can toss will save you desk space and plenty of headaches when tax time rolls around. Some tax records can be discarded after 3 years, though you may be contacted up to 6 years later for an audit. (However, if the IRS finds evidence of fraud on your part, they can require you to re-file at any time.) The U.S. Government has a chart that recommends how long you should keep other kinds of documents, such as loan paperwork, credit card records, and real estate deeds.
Back your digital data up…again.
The convenience of modern-day technology comes with a price: the possibility of lost data. Any number of apocalyptic mistakes can happen: the computer crashes, you lose your thumb-sized flash drive, the cloud server you store data on goes bankrupt…you get the idea. Try to back up across different platforms, too (for example, on a flash drive, on a remote server, and your hard drive) since you don’t know what technology may become obsolete in the next decade.
The same goes for real paper: to keep important physical documents protected, file them in a fireproof safe or a safe deposit box off-site.