Because I am partially self-employed and I own a rental house, it's in my interest to make sure I uncover every legitimate expense so I can deduct them on my return. To make sure that I have a record of business expenses, I typically put them on a credit card, use an online bill payment service or, in rare cases, write a paper check.
In theory, this means that all my information should be available whenever I need it from the Web sites of my banks and credit card companies. But there's a problem. Most banks and credit card companies store information for a limited period of time - sometimes as few as three months and rarely more than a year. When it's October 2009, that makes it tough to unearth records going back to January 2008.
I don't quite understand the reason for this limit. It's not as if disk space for their servers is all that expensive or limited. Google can store Gmail virtually forever, and photo and video sharing services like YouTube and Flickr seem to have almost unlimited space for user data.
Aside from persuading banks to store records forever or at least for a couple of years, another obvious solution is to remember to go to your online financial accounts every month or so to download the data and store it on your hard drive. I do that when I remember. However, to be honest, when I'm not in tax mode I typically don't think much about financial records, so I didn't do it regularly enough in 2008 to have a complete record.What I wound up doing was relying on monthly statements, paper records or PDF files that list all expenditures during the year. That gave me all the information I need, but because it wasn't "machine readable," I had to manually enter it into my spreadsheet to come up with the necessary data for the IRS.
Another solution is to rely on personal finance software. Quicken can be configured to download credit card and bank information, but if you're using the retail product, you have to remember to run the software regularly so that it can go online to update its records.
A better solution is to use an online financial management program that runs and updates in the background even if you do nothing. The two leading services are Mint.com and Quicken Online. However, assuming it's approved by regulators, Intuit, which owns Quicken, will soon own Mint as well. Quicken Online will be positioned as a mobile and online interface for Quicken desktop users. Mint will remain a Web-based service.
With both Quicken Online and Mint you can add account information for credit cards, checking, investments and other accounts, and the services will automatically upload information daily regardless of whether you sign in.
Between the two, Mint is by far the better service, which is probably one of the reasons Intuit acquired it. It's more automated and more comprehensive. It even keeps track of the estimated value of any houses you own through Cyberhomes.com.
Once you tell Mint about an online account, it downloads as much information as the financial institution provides. If the bank or credit card company keeps data online for a year, you'll get the year's worth, but if it only keeps it for three months, that's all you'll get. But, once the account is set up it will keep the transactions up to date. While you don't have to log in regularly, you do need to log in at least every 180 days to keep your Mint account open.
You have to tell Mint the user name and password for each account, but sometimes that's not enough. Many financial instructions now ask you additional questions such as the make and model of your first car, the name of a childhood pet or the street you grew up on. If that information is necessary to log in, Mint will tell you there's a problem and ask you to specify it. It's possible that the bank has even more questions up its sleeve that could come up later so it's a good idea to log into Mint periodically to make sure it has all of the challenge questions the bank might ask.
Mint can report your expenses and income by category on an account-by-account basis or in a single registry that combines all your accounts. You can sort by date, transaction description, category or amount. Most important, you can export the data to a CSV file that can be opened by Excel and other spreadsheets. Unfortunately, it doesn't export into a format that can be imported by Quicken, but I hope they'll fix that after the merger goes through.
Mint can also help you track your investments, establish budgets and keep track of how you're doing on your budget by category such as restaurants, shopping, clothing, alcohol and bars, and gas. It does a pretty good job of automatically categorizing credit card expenses, but you can override them if necessary.
And, of course, Mint is mobile. You can get real-time updates via text message or use the iPhone app.
This column first appeared in the San Jose Mercury News.