Pillar II: Paper or Digital Systems?

Tips for establishing systems for tax-time

Do you groan every year when tax-time rolls around?

You are not alone. Many people do not have good systems for keeping track of taxable information throughout the year. Nearly 10 million have to file an extension, which ends up costing them MORE time and MORE money.

Technology has made tracking income and expenses much easier for some, but for others that comes with its own challenges. There are basically two ways to keep track throughout the year: paper filing or electronic capture.


Either one requires discipline and good habits, which is where many fall short but that is a Pillar 3 (Execution) issue! And you have to know what is and what is not tax-related, a Pillar 1 (Understanding) issue. Your accountant can help with this.

Paper Systems

If you are not comfortable with technology, a paper system can work just fine, as long as you can get a paper document, which is a challenge sometimes. Here are a few simple steps to help you:

  1. The IRS requires that you keep a record of all tax-deductible expenses. It should include the date, the description of the item or service, the amount, and proof that you paid it. So a credit card statement that just says ‘Amazon’ is not proof that you purchased medical equipment. You need the Amazon invoice which is available on your account.
  2. You need a file folder or someplace to keep just the tax-item receipts for each year. Get religious about putting things in it as they occur.
  3. If your receipt comes via email, you need to print it out (or use a hybrid system and save it digitally.)
  4. Keep a mileage log if your miles are tax-deductible. In your car. Handy. (A phone app is much easier, but more techie.)
  5. When the year ends, add your W-2, 1099s, K-1s, and other tax documents to the file.
    Organize your file and summarize the detail for your accountant or for filing yourself. You only need all the detail as backup in case you get audited.
Paper or Digital? Either can work.

Digitally Organized

If having lots of paper around is too much clutter for you, there is no reason to keep all those original documents for tax purposes.  The IRS has allowed unaltered copies since 1997 (coffee stains and all).  Just be sure they are readable.

With so much tax data being generated, emailed, downloaded and digitally stored these days, it can mean a LOT of printing if you don’t go digital.  Companies are increasingly reluctant to send paper because it is expensive and bad for the environmental.  Here are some tips for being digitally organized:

  1. Keep a folder on your computer for each tax year.  You can make sub-folders by other categories if you wish.  
  2. Save all email receipts and other proof of taxable expenses.  You can even save emails as pdf files to keep it all together.
  3. Download your bank, credit card, and other statements monthly.  (You should be reconciling them anyway.)
  4. Use your phone or scanner to add copies of paper documents you get by mail or in-person.
  5. Use a phone app like MileIQ or TripLog if you need to track mileage for business, medical, or charity driving.  It adds up!
  6. Using financial management software like Quicken, Mint, or any host of others allows you to connect to your bank, investment, and credit card accounts and get every transaction downloaded for planning and tax purposes.  Donations? Medical expenses? Sale of home?  It’s all at your fingertips.
  7. And…most importantly, be sure to have an automated backup or at least store important files in the cloud (online).

Most CPAs have secure portals for you to send them the electronic documents.  Just don’t be asking for a lot of help with that during tax season!

Neither way works…?

For a variety of reasons, many people have difficulty establishing and maintaining either kind of system.  Parkinsons, ADD, dyslexia, quadriplegia, vision disorders, dementia and purely lack of time are just a few things that make every day a struggle.  That is where having a daily money manager can ease the burden and at least remove the stress of handling everyday finance from the picture.  

We offer free Discovery Meetings if someone you know could use some help.

Your health and peace of mind are worth every step of this journey.