One of my clients recently had a scary experience. They were asked to prove all their business expenses for the last ten years. For any of us in business for ourselves, this is as painful a task as there could possibly be. Thanks to QuickBooks, and some good luck, we were able to work through the process without having to do what the court originally requested.

Their situation was somewhat unusual. They live and work in California. The ex-spouse claimed that they were not paying enough child support. The Clerk of Court's office had someone, a new attorney-type official, who looked to be trying to impress his superiors. He was going to use my client to show how tough he could be. Luckily, the judge didn't go along with this. We showed our QuickBooks reports for the last few years and explained the extreme burden going back ten years would be. The judge agreed, and forced a settlement that was in our favor.

The entire ordeal served to reinforce my belief that you need to keep good records. It also showed me that, for each tax return that I work on, I need to impress upon the client the importance of documenting expenses. The annual process of boxing up and saving receipts and cash register tapes is tedious at best. But it needs to be done in a way that allows us to go back to those boxes if we need to and find all of our documentation.

As I prepare each and every tax return, I have always assumed that we will be audited by IRS. I make sure that I write down explanations of every dollar amount that shows up on the tax return. I don't rely on memory; I'm too old for that. Audits generally happen two years after a return is filed. I don't trust myself, or the client, to remember things back that far.

The purpose of this article is to impress upon you, the taxpayer, the importance and need to write things down, save appropriate paperwork, box it all up at the end of the year and store them in a safe, dry place. Label each box with the year it contains. Hopefully, you will never need to look at them again. After seven years, you can throw away the entire box.

Please note that you do not put permanent items in the box. Contracts, real estate papers, copies of tax returns should go in a permanent file. It is the other stuff that we want to throw away that should go in this box.

As many of you know, I believe QuickBooks, or Quicken, or some similar software is your best bet as far as recordkeeping is concerned. The judge liked our detailed reports. They held a lot of weight in court. The funny part of this story is that this was a client who resisted computerizing their bookkeeping. They are now extremely happy I talked them into doing it a few years ago.

That's my story for today. Please call or write if you have any questions or comments.