by: Debbie Dragon

Business owners have long recognized the value of using credit cards for business record keeping and tax preparation – but did you know that credit cards can also help you prepare your personal income tax returns? For those of you with a home based or small business, having a credit card that is used only for business purposes is ideal as it helps you separate your personal and business expenses.

Using Credit Card Statements Eliminates the Need to Track Every Last Receipt

If you are a family that relies on a credit card to make all of your monthly purchases, you could find tax-time to be a breeze. Now, instead of digging through a shoe box of receipts, finding receipts that somehow made their way under the driver's seat of your car, and extracting receipts from the depths of your purse – you can simply go over 12 months of credit card statements to highlight the expenses you need to report on your taxes. In some cases, credit card companies will even issue you a year-end statement with all of your expenses categorized for you – making your job of entering the total figures even easier and less time consuming.

Credit card statements serve as proof of purchase in the same way receipts do, so keep a binder or file folder handy and save your credit card statements each month. They're much easier to keep track of than little receipts!

Consider Using More Than One Credit Card to Further Reduce Time Spent Categorizing Expenses

If you wanted to really make good use of credit card statements, you could designate credit cards for specific types of purchases. Use one credit card for all personal purchases that would not apply to your taxes; use another for all home maintenance expenses; another for medical expenses. Use cards based on what you typically file on your taxes, and designate one credit card for each type of expense. For most people this would be considered “overkill” but depending on your unique situation, having statements of your annual expenses per category could be very beneficial and reduce the amount of time you spend searching for appropriate receipts and records to use at tax time.

Additionally, if you are concerned about the potential for credit card fraud when you use a credit card online, you may want to limit one credit card for all online transactions. This limits your risk to just the one credit card, although online security has come a long way and the potential for online fraud is not as high as many people believe. This is just an option for having some peace of mind when using your credit card details online. Another way to avoid using your credit card details when shopping online is to connect the card with a Paypal account, and then pay using Paypal rather than the actual credit card. The retailers will never see your credit card number or details when you use this method.

Computerized Tax Preparation Programs like Credit Cards, too!

Another benefit of using credit cards is that many tax preparation programs, like TurboTax and Quicken, will automatically update your records by downloading your credit card statement from your credit card company's website. This eliminates the need to have to manually enter each transaction. If you set up your categorize appropriately, the information can be automatically obtained and entered ready-to-go for tax preparation. Once everything has been entered, you can even use the credit card to pay for electronic filing of your taxes.

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