Maintaining Proper Records

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To say that the international business climate has undergone major changes over the past few decades is an understatement. With the growth of the world's economies and the decline of our own, competition is fiercer than ever. Many organizations have no choice but to "evolve or die," forcing them to operate more cost consciously than ever. As a result, company benefit packages have shrunk, forcing employees to be responsible for a larger portion of their health care costs and retirement planning. With these increased responsibilities, it is important to develop and maintain good organizational and record keeping skills. Whether you travel for business or are simply trying to maximize your tax deductions, maintaining proper records allows you to keep a watchful eye over your finances.

Why should you keep records?

At some point, whether at the time you go away to college, move out on your own, or simply become frustrated at the chaos of your present environment, you're going to want to take control of your life. For many people who've come to this crossroads, "taking control of their life" is another way of admitting that they'd like to control their finances. Whatever the motivation, it's important to adopt a routine that fits your personality and lifestyle.

There are several reasons why you should keep detailed financial records, including:

  1. To qualify for a loan
  2. To determine and maintain adequate insurance coverage
  3. To identify and separate business expenses from personal expenses so that you can be compensated accordingly
  4. To track several different sources of income, whether from jobs, alimony, child support, disability payments, trust funds, etc.
  5. To prepare your monthly budget, and to adjust it accordingly
  6. To allow for the filing of accurate tax returns and to support your entries in the event of an audit

Maintaining Expense Records

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In today's high tech society, we have a multitude of payment options available to us. In the checkout line, we can usually choose between paying by debit card, check, cash, or credit card. We can even stay home and use on-line ordering and bill payment! When it comes to tracking our expenses, it's not hard to imagine how things get away from us.

Whether you're trying to gain control over your finances or trying to maximize your deductions at tax time, it's important to have accurate records of your spending at hand. Therefore, you need to track all of your money transactions, both cash and credit, so be sure to ALWAYS keep all of your receipts! One of your most basic records is a simple proof of payment. You can generally provide proof of a payment with a cash receipt, a financial account statement, a credit card statement, or by a canceled or substitute check. If you make a payment in cash, you should get a dated and signed receipt showing the amount and the reason for the payment. If you make payments by electronic funds transfer, you may be able to prove payment with an account statement.

An easy way to keep your receipts in order is an envelope system. You simply designate an envelope for each month of the year, and at the end of each day, place your receipts into the envelope for that month. To help you sort through the various expenses you have, label each of your receipts according to the category they fall under. To help stay within your budget, label your receipts according to the five budget categories we discussed in the Budgeting Section. For each of the five categories, try to keep as complete a record of each transaction as possible. If you have receipts from expenses that you will be reimbursed for by your employer, label them as "business." Finally, if there are any expenses that you plan to deduct from your income tax, label them "deductible."

Some examples of deductible items include:

  • Volunteer work expenses
  • Charitable donations
  • Job search expenses
  • IRA contributions
  • Home office expenses
  • Mortgage interest
  • Student loan interest
  • Medical and dental expenses
  • Disaster or theft
  • Gambling losses
  • Tax return preparation
  • Investment expenses
  • Moving expenses

If you plan on itemizing your tax returns to claim your deductions, it is recommended that you consult with a tax professional.

How long should you keep your expense records?

The length of time that you should retain your expense records varies according to their type and on the way you manage your budget. Some individuals review their budget monthly, others quarterly. At the very least, you should keep all of the receipts that you'll use to evaluate your spending until you've completed your budget. Once you have completed your budget review, you may discard the receipts used in the analysis.

Typically, your employer will require that you submit the receipts that you request to be compensated for. When you submit your reimbursement claim, make copies of the receipts that are included. When you receive your compensation, verify the amount against your receipts. If everything checks out, you may discard them.

Finally, the receipts that are used in making deductions from your income tax will need to be retained for at least 10 years. You should also keep copies of each corresponding tax return for 10 years, as well.

Maintaining Important Records

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There are a number of important documents that you should maintain. Some of these you will need to keep within reach, and others you will want to keep safe. Due to the sensitive nature of most of these documents, you will want to retain them indefinitely. The following are our recommendations of the records and the maintenance method you should employ for each.

To be kept in an easily accessible file:

  • Monthly expense receipts
  • Citizenship papers
  • Tax returns for past 10 years (with all supporting documents)
  • Paid bill receipts
  • Current bank statements
  • Current cancelled checks
  • Health benefit information
  • Credit card information
  • Insurance policies
  • Family health records
  • Appliance warranties (with their corresponding receipts)
  • Education transcripts
  • Deposit Box / Safe Inventory

To be kept in a safe deposit box or safe:

  • Wills
  • Death certificates
  • Marriage certificates
  • Adoption papers
  • Divorce decrees
  • Titles to automobiles
  • Mortgage papers
  • Veteran's papers
  • Bonds and stock certificates
  • Important contracts