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On a Shoestring: the Tax Season Special

Season of Tax

At a recent dinner party I was discussing tax record systems, as one does.  A friend of mine at the dinner party is amazing at everything she does, well, everything except record keeping it seems. Her idea was to place every receipt and tax invoice into a shoe box. To her and many others, this sounds like a great idea. After all, you keep everything in one place. However, from my experience I can assure you that a system without a chronological or alphabetical ordering system (colour coding optional) is literally unworkable to manage at a later date.

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So, there I was having heart palpitations at the dinner party, trying to think of how to nicely phrase some constructive criticism so as not to offend my friend’s feelings… But I need not have worried; her girlfriend, another organisation-conscientious individual, very quickly placed the many problems with this sort of recording system out on the table. By the end of the dinner party, my misguided friend admitted that perhaps there was a better way (though she still plans to leave sorting out the box to her accountant) and I had the topic of my tax season column – Tax invoice filing. Now, before the non-accountants among you stop reading, let me just say, it is not as bad as it sounds, and in some cases, you might even have some colour-coded fun.

Let us now go back to the beginning of my financial year. It was a crazy time for me, and therefore, I had a pile of receipts that I kept as they were or potentially could be tax deductable. They all went on my ‘to be written up and filed’ pile.  The pile grew and grew until one day, in an obsessive moment, I not only filed everything, but upgraded my filing system. It is now a colour-coded, chronologically-ordered system that allows my accountant to easily identify expenditures and tax deductibility. Besides having made a new friend (my accountant), I’ve never again had to face a big pile of receipts.

So, what did I do? I visited a little place called Officeworks. Shopping at any stationery supply centre is ordinarily a danger that should be avoided when one has either a shopping addiction or a reliance (obsession) on order and/or organisation. I, by genetic default, have both (hence the many references to impulse shopping). I once purchased labels and labelled my drawers, by the colour, brand or style of clothes the draw contained.  Umm… anyway, back to my quest for tax invoice order. At Officeworks, I purchased a rather inexpensive money ledger. This ledger had ruled columns designed to assist in organising purchases. There are places to detail the amount, date and description of goods purchased. 

Right now many readers are probably rolling their eyes thinking, ‘why the hell does this boy not use an electronic recording system, like Excel or even Access?’ I will admit that this is a fair question, but when considering the system and style of recording, I had to make allowances for how lazy I am and how, for me to use a programme consistently, it needs to be simple to maintain. Working with a hard copy suits my personal taste, just as using an electronic system suits others, such as my mother.

In a recent trip to my mother’s place, she showed me how she had sorted her personal income, where it was generated and how she built in expenses. The spread sheet was so complicated I had to download it to my memory card for later analysis. When I finally sorted through it, I found she literally had coded boxes for changing the interest rates of the rental fields. This, in turn, changed the bankable amount which constituted her income. I wish I possessed her knowledge of these programmes. But, and here’s the moral of the story, I don’t. What I do have is a system that draws on my strengths.

As soon as I receive a bill I enter the amount right away (ok, that’s a small lie and I actually enter my bills once a week or month) onto my ledge, colour coding it depending on tender type, tax deductibility and location of the receipts.

  • Cash – Red Marker
  • Credit Card – Blue Marker
  • EFTPOS – Green Marker
  • Potentially tax deducible – Pink Marker
  • Hundred percent tax deductible – Pink Highlighter

To illustrate my system, say, hypothetically, I receive a bank statement. I have a friend that just throws these in the bin. DO NOT DO THIS! On every bank statement is an allocation of interest and fees for that bank account. The interest is required to pay tax and the charges for your account have the potential to be tax deductible. So, rather than chuck it out like my friend (who incidentally is not the same friend who keeps tax invoices in a box), I quickly go through my bill and highlight only these amounts, I then place a post it on top of the page to allow for quick referencing for my accountant. The page then gets a place into the plastic sleeve that is for that bank and that account.

This might sound like a massive amount of work, and while it does require a little effort on my part, there is the potential to save a lot of money in tax. Too often I find myself justifying a purchase as a tax deduction, but this only works…. are you ready…. if you have a receipt. If you have a way of even just recording these receipts, when you do your tax or when your accountant asks for what you can claim, you can produce records without a great deal of fuss.

As a final note, it is important to use a good tax accountant. If the one you use does not produce results, don’t be afraid to switch accountants. There is no reason to pay good money for a service you are not happy with. A recipe that has worked for me has been to ask friends if they have an accountant they are happy with.  This is often a safer method as the accountant comes recommended.

Shoestring’s Takeaway Tip: No receipt, no claim. If you find a system – electronic, ledger or otherwise – of filing receipts that works for you, you will find that a little effort and regular upkeep will result in a good chunk of pocket change come tax season… After all, you deserve a new pair of shoes at the end of financial year and fancy! – you’ll even have the box to keep them in.

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