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Tax Steps to Take AFTER the New Year begins #2

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Year End Tax Steps to Take AFTER the New Year

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Tax Steps to Take AFTER the New Year begins #2

Besides recording your vehicles' odometer readings (See Tax Tip #1), what else can you do to save taxes AFTER December 31st?

How about downloading all of your bank transactions and credit card transactions and statements from last year on to your computer, a CD, a USB flash drive, or to a back up?

Transactions have a short life online

Most financial institutions will store your transactions for a limited time, 3-6 months is typical. Some will go a year or more.

I'm talking about transactions that can be exported from your online account and imported into an accounting or bookkeeping program or a spreadsheet program like Microsoft Excel.

Importing transactions saves a lot of time, errors, and frustration when completing your financial records. Sure, you could enter all of your transactions by hand. But if you were really looking forward to having all of that data-entry fun, you would have already done it!

Why haven't you already crunched all of those transactions? (Because it's boring work! Unless you're one of our firm's bookkeepers that love that kind of work! Really. But they don't work for free. Not for long. Not for forever, anyway!)

So you can save data-entry fees if you store the transactions so they can be imported.

Real Life Example of Why this is Important

Most banks and credit card companies won't have transactions available for over 3 years, which is what a Client of mine needed during an IRS audit last year. In late 2010, he needed his transactions for the entire year of 2007. At that time, some of those transactions were over 40 months old! His banks and credit card companies didn't have the transactions available in an exportable format. It would have helped if they did...especially since he had moved 3 times and had his records in a storage facility a mere 12 hours away...each way!

What about those monthly statements?

Even online monthly statements, while not as flexible as exportable transactions, while available longer, typically 12-18 months, are not there forever. (Again, some institutions have longer availability. Your bank's mileage may vary.)

Nothing lasts forever...especially when it's paperless to begin with!

This is the 'Gotcha!' about going paperless: It takes more effort on your part. You have to be more administrative to retain statements than you would with paper statements that you could just throw into a box.

And while you didn't have an opportunity to export transaction data in a paper-only world, your window of opportunity to do so is not open forever.

Download as much as you can from last year. Let that be your guide to determine how frequently you should repeat this exercise in the new year. See if you can order any missing statements and scan them or Hey!...just keep the paper copies.

Another new habit to resolve...

Start a new habit this year of downloading often enough that you get all of your exportable transactions and monthly statements. Remember: miss any and you will need to order paper copies. And a tree will die because of it. Plus the bank or credit card company will collect a fee, $5-$25 per monthly statement.

Last consequence to consider is you may lose when facing an IRS auditor three years from now looking to collect additional taxes, penalties, and interest the government will badly want from your 2011 taxes.

Even if you somehow remember all of those transactions in 2014 (but WHY would you want to?), having documentation you can show a tax-hungry auditor from a laptop or reprinted to paper will give you a much better chance of prevailing than simply 'remembering.'

What to do now

Like my Client, who prevailed in his 2007 audit, you can win, too, but with less driving if you store those transactions and statements! Save paper...and gas. Start downloading regularily!