Small business Tax Questions — You may not Have to Keep Receipts?
Do you wonder whether it’s really necessary to keep Receipts to document your enterprise or self-employed tax reductions? Does the IRS expect you to maintain detailed records as evidence of business expenses?
The answer fot it question is “Yes. inch Sure, there are a few conditions to virtually every tax law. But generally speaking, it is true: no receipt, no deduction. In other words, if you get audited, and you don’t cek resi j&t have the documentation to confirm the deduction, anticipate to lose the deduction. And if you lose a deduction, that means your taxable income will be increased by an amount comparable to the lost deduction, and you will incur additional tax liability that will now be paid late, meaning you’ll have to pay late payment penalties and interest as well.
In fact, just to say you will need a receipt isn’t always enough. What the IRS is after is evidence of purchase. You must be able to prove that you really bought what your tax return says you bought. If you keep the receipt, you have proof that you bought something. The receipt should indicate the date, amount, and place of purchase, along with a brief but clear description of the item purchased.
Sometimes a receipt will contain all that information. Sometimes it might not. This is often the case with regard to the description. Which means this is where an expenses from the vendor comes in handy. The combination of the receipt (proving payment) and the expenses (proving what exactly was purchased) is the ideal combination of audit-proof documentation.
If you only have evidence of payment, you could have problems. For example, if all you have is a terminated check, bank statement or a charge card statement, whatever you can prove is that you made a payment for a certain dollar amount on a certain date at a certain place, but you really don’t have written confirmation of the nature of the purchase. You have proof that you spent $100 at a particular store, but you really don’t have the proof that you spent the money on a business-related item. That’s why having the terminated check or bank statement as well as the receipt is the best defense against IRS scrutiny.
The bottom line is simply this: establish the habit of saving all Receipts and other documentation for business expenses. Make a photocopy of the Receipts upon returning to a cubicle and file it in the appropriate expense folder. Save it for at least four years, along with all bank and credit card statements, and you’ll have all the necessary paperwork for an audit.