Receipts, like memories, tend to fade with time. That's just one reason to digitize and track tax-related information. The right apps and habits can save space, time, money and hassle — but only if you use them.
"The definition of a good app is what works for you, not the one that's the trendiest," said Clare Levison, a certified public accountant in Blacksburg, Va.
Apps don't have to be elaborate. The camera on your phone, for example, can capture receipts and other documentation. Levison recommends regularly transferring those images to a designated folder in your photo app to make them easier to find later.
Similarly, you can create folders in your e-mail account to collect tax-related documents. If you are an active investor, for example, you can put your trade confirmations there (or set up a filter so the confirmations are routed there automatically). If you purchase supplies for your business online, a folder can collect e-mailed receipts.
Another commonplace tool that can be helpful, especially for anyone claiming business expenses or mileage, is a calendar app. These records can help document meetings with clients, business travel and other potentially deductible events.
"The IRS auditor always asks for a copy of my calendar," said Leonard Wright, a San Diego CPA who has been audited four times.
You also need to regularly download monthly statements from your financial institutions, said Kelley C. Long, a CPA in Chicago.
If the IRS suspects you have underreported income, it may ask for bank and brokerage statements.
Ideally, your computer and phone are already being backed up into the cloud so that you can access your data if the devices are lost, stolen or destroyed. If not, you want to make sure that at least your tax information is regularly transferred to a secure cloud storage system or other safe, off-site location.
The key is to keep information safe and accessible, which means choosing electronic over paper wherever possible.
"I usually tell business owners, 'No receipt, then no deduction,' " said Bob Fay, a CPA in Canton, Ohio. "This is a short message that sticks with them as they have so much on their plate every day."
Sometimes, specialized apps can make sense. Scanner apps can help you capture tax-related paperwork, and some have optical character recognition that allows you to turn images into editable — and searchable — files.
If you have an iPhone or iPad and itemize your expenses, ItsDeductible and iDonatedIt can help you track charitable gifts throughout the year and find values for noncash donations such as clothes and household goods. (These apps don't have Android versions.)
Apps that create expense reports, such as Expensify or Everlance, can help gig workers and other self-employed people track business-related costs.
Wright, the much-audited CPA, swears by apps that help track mileage, such as MileIQ, TripLog or Everlance.
It's critical to develop the habit of using the apps and other processes you set up, says CPA Tim Todd of Lynchburg, Va. Otherwise, you are not creating the digital paper trail you will need to survive an audit. Plus, you could be costing yourself money.
"Keeping records in real time can also help make sure you don't forget those items come tax time," Todd said.
