Taxpayers Guide to LLCs and S Corps
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Do I need receipts for my expenses?
Receipts for my expenses
Receipts and recordkeeping are common concerns. It is your responsibility to prove your expense- in the absence of proof, the IRS and the Tax Court will allow some estimation but it is weighed heavily against the taxpayer.
Here’s the skinny: you need a record showing the business nature and you need documentary evidence showing that you paid the amount, who you paid it to, and the date.
A record is:
2. Account Book
4. Or something similar (iPhone app, electronic journal, etc.)
Documentary evidence is:
2. Canceled Checks
3. Bills, Invoices
4. Credit Card Statements
5. Bank Statements (for electronic funds transfer)
What does all this mean? If you have a receipt, you should jot down what the purchase was for. If you have a credit card statement, you should circle the amount, and make a note what the purchase was for. If you make payments in cash, you should get a dated and signed receipt showing the amount and the reason for the payment. Essentially your documentary evidence must show the amount, date, place and the record must show the nature of the expense.
Myth Buster: Simply keeping track of your expenditures in your iPhone or a spreadsheet will not be enough. This would only be the record part of the two-part requirement. If you spend $150 on office supplies, you can keep an electronic record of the purchase but you also need a receipt, credit card statement, etc.
Also, documentary evidence is not required for items under $75, even if they collectively exceed $75. However, a record in most cases will be required by the IRS in the event your tax return is examined.
Please understand that keeping all receipts is still the best procedure for minimizing tax complications regardless of the $75 caveat. Credibility is critical if you are required to present your proof to the IRS- make life easy, and be organized.
We will not need copies of your records or documentary evidence to prepare your tax return. This is only in the event your tax return is examined by the IRS (in 2011, only 1% of tax returns were audited, and most of those were done through the mail).
In looking ahead, our advice to taxpayers who need to track expenses associated with his or her job, or small business owners and rental property owners, is to use a separate credit card for those purchases. We understand that using separate credit cards might create some hassles, but ensuring that all your expenses are properly documented with receipts for my expenses and more importantly deducted on your tax returns should outweigh the inconvenience.
Continue reading How should I maintain my records? for more detailed information on how to keep records.