Don't Ignore the Tax Laws on Receipts - Philadelphia CPA
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Don’t Ignore the Tax Laws on Receipts

Don’t Ignore the Tax Laws on Receipts

While the tax law may not always require receipts, the tax law always requires proof. If you do not have receipts, you have to prove your expenses in some other way.-which may mean reconstructing your business deductions several years after the fact. You will make life less taxing if you keep your receipts, as well as the additional information contained in this brief article.

The IRS requires proof of at least 2 things for all business expenses:

  1. How you spent the money
  2. The business purpose for that expenditure

Receipts will provide how you spent the money. However, and more importantly to the IRS is how the expenditure relates to your business; the business purpose, and is it ordinary and necessary for your type of business.

Avoid Paying With Cash

As a general rule, don’t pay with cash, it creates further problems–as the IRS agent will want to know

  • where the cash came from
  • How good is the trail of cash to the actual payment
  • Was an ATM withdrawal evident before the cash payment
  • Did you really spend the cash for this business purpose or was it just made up

You will not have to answer these questions, if you pay by check or credit card.

Always Keep Your Bank & Credit Card Statements

Credit card statements and cancelled checks are good records to keep. They provide the detail of how much you paid. However, not what you actually purchased.

For example, if you go to Staples, you might buy copy paper for your office, and also buy up some Halloween candy. The credit card statement will only show the lump sum payment, the receipt will provide the detail of exactly what was purchased. The IRS wants to know the business purpose, so the receipt is crucial.

Tax Law requires Receipts For..

Receipts or written documentation are absolutely required for:

  1. Expenditures over $75 for entertainment, travel, gifts, vehicles, any form of transportation, entertainment facilities, and computers and peripheral computer equipment
  2. Lodging expenditures for out of town travel
  3. Expenditures for charity over $250

When you make a habit of keeping receipts and documenting your expenditures, you don’t have to worry about the taxman.

This may bring you peace and make your brain happy.

Electronic Copies

The receipts will fade over time, and this is problematic because IRS audits occur a year or 2 after your submit your return. A good way to avoid this is to scan your receipts, and organize the records electronically. Then, you will not have to keep a paper copy.

I recommend  the TaxBot app that is created just for this purpose for business expense documentation.