Keep the Receipt or Lose the Deduction!
- April 8, 2015
- Posted by: ACPWC
- Category: Business Tips small business tips
It is amazing that a small piece of paper can bring either relief or discouragement. Do you know how IMPORTANT your receipts are when you are in an audit situation? The thing that bugs me is that the IRS can deem a deduction disallowed because the burden of proof is on the taxpayer. And, if you don’t have your ducks in a row, they fall out of formation and it can cost you money. I hope this article below gives you insight to protect all your deductions.
To Your Success, Renee
Keep the Receipt or Lose the Deduction!
by Renee Daggett
Time after time, there are rulings from the IRS stating someone lost their deduction due to bad record keeping.
Karen Hough had to pay $100,849 in taxes because she “estimated” the business expenses. She relied on her testimony to prove the deductions, while the IRS required documentation. She did not have cancelled checks or receipts. The IRS could see she spent money, but because she could not prove the items purchased, the deductions were denied. There were no excuses.
I had someone ask me why they should keep their receipts when they charge all their business expenses on a credit card. The reason why you keep a legible receipt is that if you are in an audit, the IRS will NOT accept the line on a credit card statement showing a store purchase. They need the original receipt or a readable copy. If you don’t have the receipt, the auditor can say that you purchased school supplies for your kids and not believe you purchased office supplies for your business. The deduction would be denied. Do you save all your receipts? Do you copy the thermal receipts because they will fade after 2-3 years?
To keep your record keeping life as simple as possible, have one business checking account. Run everything through this account. This way you can track income and expenses in one place. I pay $1 a month to have my business checks mailed back to me so I don’t have to print copies of checks online. I know most banks go back months or even a few years, but if you are audited, it can be 3 years later and who wants to print each check online? Plus, I work with many banks and some don’t go back 3 years. I have had clients have to pay large bank fees to get copies of checks. No fun!
The IRS requires that you keep a log of your business miles. This includes starting and ending odometer, date, business miles driven and business purpose. Your calendar and your receipts will help indicate where you drove. Don’t forget to count your deposit runs to the bank!
You need to train yourself (and your staff) NOT to use cash. Cash is so hard to track. If you lose the receipt, you probably won’t remember what you purchased…thus missing a deduction you were allowed to take.
For meals and entertainment expenses, you are required to document who, where, when, why and how much. You have to indicate WHO you were with and why you entertained this person.
So how long do you need to keep your receipts? You can amend a tax return (or be audited) 3 years back. However, if you underestimated your income, the IRS can go back 6 years. If you did not file or filed a fraudulent return, the IRS can go back many years as they want. Also, if you purchase assets and they are depreciated over a period of years (5, 7, 15 years), you need the original receipt for that period of time.
Bottom line is that you need to PROVE everything you purchase for your business. Do you have written documentation that if you were audited there would be no change in the taxes due? I hope so!
Admin Books Can Provide Peace of Mind with
A new client came to us seeking help to file his tax return. We collected the data for the current years return and made sure they received every deduction allowed. Since the client lived in another county, they found it convenient to review the return remotely, speaking to the preparer on the phone.
Admin Books noticed that on their last year’s return, they did not file 2 deductions to which they qualified. In this return, the husband and wife were self-employed, had a good size practice, but were paying high self-employment taxes. The client was very pleased to find out we could assist them in amending their last years return to collect a refund. Admin Books also recommended changing the business entity in order to reduce their tax liability. Does your preparer review the return with you line-by-line? Are you confident that you are paying the lowest taxes required?
by Renee Daggett
Our business purpose is to provide the small business owner with peace of mind. We are passionate about helping business owners, CEOs and managers be successful in their business.
- Set asideW-2’s, 1098 Mortgage Interest Statements, 1099-MISC, 1099-R, 1099-B, 1099-DIV, 1099-INT in a file ready to give to your tax preparer for your 2013 tax return.
- Did you know…if you accept credit cards as payment for your services and products, you can be paying premium fees? Check to see what percentage you are payingfor Non-Qual rates. It can be 3-4%. The reason why is because of the rewards/points cards and company cards that are used get charged a higher percentage.
- Have all 2014 bank and credit card accounts reconciled. Check for any un-cleared items in the reconciliation window. Review details of all new assets purchased for the year (what was purchased, date and amount).
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Know anyone that’s struggling with:
- Tax returns
- Financial management of their business
If so, please tell them about Admin Books and email Renee their information. If your referral hires us to help them, we would like to thank you with a $25 VISA GIFT CARD!!
Complimentary Tools for YOU!
I want to make sure you are aware of several valuable items that you can take advantage of on my website compliments of Admin Books.
- FREE business quiz
• Audio on personal finances
• Mileage log
• Records Retention Guide
• 30-min. consultation for prospective clients
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