Documenting Business Expenses

Jun 24, 2014

business-expensesMost ordinary and necessary business expenses are deductible as long as you have the proper documentation. If your return is audited, the IRS may require that you show the type of item purchased and that payment was made. Here are some examples of acceptable documentation.

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 also accepts highly legible images of checks if you don’t have your checks returned.

Credit/debit card transactions. You must have an account statement that shows the amount of the charge, the transaction date, and the name of the payee.

Electronic funds transfers. The IRS requires an account statement that shows the amount of the transfer, the date the transfer was posted to the account by the financial institution, and the name of the payee.

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 of payment.

Cash register receipts. If you receive a receipt with no details of the items purchased, write a description of the items on the slip. As long as the purchase is for a relatively small amount, the IRS should accept it.

If it’s not self-explanatory, make sure you write the business reason for your purchase on the invoice or receipt so you’ll be prepared for any questions from the IRS. And be aware that there are separate substantiation rules for travel, entertainment, and auto expenses.

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