SG Financial Services

This is a tip for setting up a filing system to keep track of those basic tax deductible expenses as you go through the year.   It takes some thought to set up but is worthwhile for the do-it-yourself type of person.

The best time to start this is on January 1st of the year in which you want to save your receipts (not the previous year).  But anytime is better than never.  Go to your favorite office supply store and look at the expanding files, the accordion type or the plastic type with a flap that closes.  Look for one with several compartments and a way of labeling each compartment.

Get out your last tax return or go to irs.gov and look at Form 1040 Schedule A - Itemized Deductions, and Schedule C - Profit or Loss from Business (for sole proprietor businesses) and the instructions [A] [C] for those if you want definitions.  This will help raise your awareness of what you may use as a deduction or business expense.

Then label each compartment of your expanding file to match each deduction category.   Schedule A has Medical and Dental Expenses, Gifts to Charity, etc.  Schedule C has Advertising, Supplies, Office expenses, Travel, Insurance, etc.  Just use the categories that are appropriate for you.

One other category to consider is if you use part of your home as your office.  Look at Form 8829 Expenses for Business Use of your Home.

Save one compartment for income, whether you get a W-4 from employer or 1099s from income as a consultant or if you get payments through the year from various sources.  It may get a bit trickier if you have income from various sources.

Now comes the important part.  Every time you spend some money that may be one of these deductible catagories, make sure to save a receipt.  Write what the item is on the receipt if it isn’t printed on there.  If you make an online purchase, print the receipt.  Every time you get a receipt, put it in the appropriate compartment of the file.  Don’t save it until you have time to do it- get in the habit of emptying your pocket or purse when you come home with the receipts and filing them immediately.  It is much less of a hassle to do it as soon as you get it than to save it up.

At the end of the year, you can simply give this file to your accountant.