When Benjamin Franklin said that death and taxes are the only certainties in life, he missed a third: paperwork. For years, taxes and paper-based administration have been linked inextricably. Financial advisors and their clients must prepare tax documents each year using receipts collected over the previous 12 months.
The same questions arise every year: “How can you prevent receipts getting out of hand? How can you get the information from receipts into a bookkeeping system with minimal manual work? And if the Canada Revenue Agency (CRA) conducts an audit, how can you prepare the necessary documentation in a timely manner?”
Canada’s Income Tax Act requires individuals, corporations, partnerships and trusts to keep records for six years after the end of the relevant taxation year. Those records include cheques, vouchers, receipts and accounting records – in other words, any records needed to calculate taxable income.
The period for which the law requires taxpayers to store documents can be quite lengthy. For example, if your client purchased a property six years ago and sold it this year, then 2017 would be the most recent relevant taxation year for any documents relating to the sale. Consequently, you or your client needs to keep the statement of account for that property until 2023.
Some documents must be stored much longer. Records relating to a corporation, such as directors’ and shareholders’ share certificates and transfer documents, must be kept for the life of the corporation, plus two years.
The CRA can ask for access to any of these records for auditing purposes, and if you don’t have the documents, you will be at a disadvantage in an appeal. So, proper storage is a must.
Thankfully, technology can ease the burden of tax-related paperwork. There are many digital options available to keep track of receipts and other tax- related documents.
Receipt-management software can take care of yours or your clients’ receipts as soon as they get them, freeing up valuable wallet space and reducing stress. Cloud-based receipt-management services store an image of a receipt and, thanks to optical character recognition (OCR), automatically recognize salient details from the image, such as account numbers, amounts and HST numbers.
One of the most popular services is Durham, N.C.-based Shoeboxed Inc.’s eponymous service. Operating since 2007, the firm started out with paper-based pack rats in mind. The service provides prepaid, pre-addressed envelopes into which you stuff your receipts every month, then mail the envelopes back to Shoeboxed.
When Shoeboxed receives the receipts, they are scanned using the service’s software, which pulls the relevant information into the service’s system. (With some payment plans, you can have the documents returned to you.) Once the receipts are in Shoeboxed’s system, clients can search for them using criteria such as vendor, date range, price range and currency. Users also can assign categories manually to receipts in Shoeboxed and handle them on a batch basis.
If your clients are worried about entrusting their receipts to postal services, Shoeboxed provides other options. When the company first launched, the iPhone was just coming onto the scene, ushering in the modern smartphone age. Now, Shoeboxed offers a mobile app that enables users to snap a photograph of a receipt directly. Clients can review their photo, enter a category and an explanatory note, then send that file to the cloud.
This method carries two benefits. First, clients needn’t wait until the end of the month to send off their receipts. Second, clients can make a note at the time they get the receipt, which is far more convenient than trying to remember what a receipt was for when the CRA asks years later.
There are alternative apps, including Receipts Pro, from Sackville, N.B.-based Tidal Pool Software. This software lets users photograph receipts via an iOS or Android app, then generates reports in a variety of formats showing their spending. Customer reviews include complaints that the software doesn’t automatically recognize data from receipts, although clients can “autofill” receipts’ individual photo files based on previous ones. A notable feature is the ability to convert foreign currencies into Canadian dollars.
One feature of Tidal Pool’s system applies to a one-off payment of, say, $13.99. The app keeps the receipt on your mobile device, but you can sync to the cloud by using a third-party cloud storage service such as Google Drive or Dropbox.
Washington, D.C.-based receipt-scanning firm Receipt Bank offers a mobile app to use for accounts for single users or for multiple users in a small business. Account fees begin at $17.99 a month for a single user (or $29.99 a month for multiple users), which permits you to scan 50 items. These prices increase according to the number of receipts.
For clients who don’t trust the cloud and want to store their files locally, one option is Neat software from The Neat Co. in Philadelphia. This company offers a mobile app, too, but gives clients the option to use the firm’s PC or Mac-based software, which works either with its own scanner or third-party models. You also can sort your receipts into folders on your client’s computer.
Like some other cloud-based services, Neat includes OCR, which extracts key data from receipts, thus making them searchable documents. Neat syncs with the web and with various devices so that clients can store receipts on both their smartphone and computer, for example.
One of the nice things about Neat is that it can be used to scan other documents, enabling it to handle everything from incorporation documents to tax returns.
Many mobile scanning apps will allow users to snap a photo of a document. Some, like Genius Scan, from Paris-based Grizzly Labs, include batch scanning modes that recognize the outline of a paper document and scan it automatically, allowing your mobile device to slurp up multiple pages as you put them in front of it, one after the other. Nevertheless, clients who deal with lots of lengthy documents will need a separate scanner.
One thing to watch for with receipt scanners, in particular, is how well they integrate with other online services. The real beauty of these cloud-based offerings is how they can tie your receipts into online bookkeeping and accounting software. For example, Shoeboxed integrates with New Zealand-based cloud accounting service Xero Ltd., so that when you attempt to reconcile a credit card or bank account statement, you can link directly to the receipt.
Integration is a strong point for many of these packages. Neat integrates with such services as Quickbooks Online (from Palo Alto, Calif.-based Intuit Inc.) and Newcastle-upon-Tyne, U.K.-based Sage Group PLC’s cloud-based offerings, for example.
When recommending a tax-document scanning and storage solution to your clients, think of the entire process. Does scanning receipts on the go work best for a client, or does he or she have an assistant who will scan all documents – including non-tax related ones – at the office? Is your client the only one contributing documents, or is a team-focused system needed?
Then, there’s the most important question of all: “Is your client confident enough in using an electronic system to shred his or her receipts and other documents altogether?” Some clients may prefer to keep the originals, just in case.
Even for clients who can’t let go of the paper, electronic document storage is worth a look. Physical receipts can be archived in a real-life shoebox somewhere while electronic versions can be stored and searched when tax or audit time comes around.
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