Keeping Proof of Your Tax Deductions

//Keeping Proof of Your Tax Deductions

Keeping Proof of Your Tax Deductions

When filing your tax returns, you do not need to submit documentation that supports your business or personal deductions. However, the IRS can request this information on demand, so you definitely want to have documented proof in your files just in case. The documentation you need will depend on whether you are claiming a business or personal deduction.

Business Deductions

You can claim a business deduction for any expense that is both ordinary and necessary for your business. Necessary does not mean indispensable. Instead, it means that the expense is helpful and appropriate for your business. The following can help you keep track of your business expenses.

Use a Separate Business Account

Using separate accounts for personal and business expenses makes good legal sense. If you commingle personal and business expenses, it might look like you are using your business as a sham to make personal transactions. This could hurt you if anyone chooses to sue your business.

Using separate accounts also helps at tax time. First, it serves as some proof that the expense was really a business expense if you put it on a business credit card. Second, you can easily access your account statements when it comes time to show how much you spent.

Access Digital Records

Many businesses use Fiverr, Dwolla, or PayPal to make payments to vendors. You can easily pull up records of your business expenditures on these and other websites. Even better, these companies may even send you a 1099-K when tax time rolls around.

Personal Deductions

Taxpayers have a variety of personal deductions they can take, from donations to charities to excess medical expenses. You will need to back up your personal deductions just like you would business deductions. To help at tax time, do the following:

Hang onto Receipts

If you made a tax-deductible donation to a charity, then you should receive a receipt upon donation and also a giving statement at the end of the year. These forms will serve as proof of how much you donated. In fact, you should hold onto any receipt if it is related to a personal expense you intend to deduct. Write notes on the back of the receipt, if necessary, to clarify what it relates to.

Keep Tax Records

Some taxpayers deduct local or state taxes from their federal return. If so, you can hold onto your tax due statements and use them as proof of your deductions.

Bank and Credit Card Statements

If you didn’t hold onto receipts or invoices, you can still check your bank or credit card statements which will serve as proof of your deductions. Some financial institutions provide annual year-end statements which make it easy to find the information you need.

Speak with an Atlanta IRS Lawyer if You Have Questions

If you are facing an audit, you need a skilled IRS Tax Law attorney in your corner. Jeffrey L. Cohen, Attorney at Law, is available to answer your IRS tax law questions, whether related to deductions or another issue. Call for a free teleconsultation, 404-814-0000 or fill out our online contact form.

By | 2018-02-08T17:09:58+00:00 February 18th, 2018|Uncategorized|Comments Off on Keeping Proof of Your Tax Deductions

About the Author: