Prove Your Deduction Claim When the IRS Comes Calling.

Author: Jenny Shilling

Keeping good records is critical. Should the IRS come calling, you will have the documentation you need to prove that your deductions are correct.  Keeping proper records will also make your qualified tax professional very happy, as it makes their job a little easier.  Expenses that are "ordinary and necessary" can be deducted if you have the correct documentation.  Here are 4 tips for what constitutes correct documentation:

1. Cancelled Checks - A canceled check can be used as proof of payment if it has the name of the payee and shows the cancellation on the back. The IRS will also accept digital images of your checks if your cancelled checks are not returned to you.
2. Credit Cards, Debit Cards & Electronic Funds Transfers - Your credit card statement must shows the amount of the charge, the transaction date, and the name of the payee to be acceptible proof.
3. Invoices - You must have an invoice or some other form of documentation showing what you purchased. Canceled checks, credit/debit card statements, and records of electronic funds transfers only provide proof that you made a purchase.
4. Cash register receipts. If you receive a receipt with no details of the items purchased, write a description of the items on the slip. To prevent deterioration of cash register receipts, consider using your smart phone and a record keeping app to save proof of those receipts.

When gathering your documentation, be sure to indicate the business reason for your purchase on the invoice or receipt so you’ll be prepared for any questions from the IRS. Keeping your documentation stored in the cloud makes organization easier. With all of the records easily accessible from one location, they can be uploaded or sent to your qualified tax preparer through the use of email or portal access.

The Tax Office, Inc., works with you to compile your records.  If there are any questions we can answer regarding record keeping, storage or taxes, please contact us. Our tax specialists are happy to assist with any tax related matters.