Your Taxes: So I’m actually supposed to save my receipts? | SummitDaily.com
YOUR AD HERE »

Your Taxes: So I’m actually supposed to save my receipts?

by Michele Knight, CPA

In my last column, I wrote what I hoped was an inspirational plea to get taxpayers to start tracking their income and expenses year round, and to make the effort now to get on track for 2011. In that column, I mentioned that I recommend saving receipts for seven years. My eyes were opened when the smartest woman I’ve ever met emailed me and asked, “So I’m actually supposed to save all our credit card receipts?!?”She definitely made me realize that perhaps I have to take a step back and explain what you need to be saving! The best way to think of it is with the end in mind – the end being the dreaded IRS audit! If you are selected for audit, the IRS will randomly pick several categories to audit. For an individual they may choose charitable donations, or for a small business they may choose advertising and office supplies. They will take the balance of what you deducted and ask you to substantiate it. How do you substantiate something? In the mind of the IRS, you need to prove both payment method and the expense itself. They believe, rightfully so, that you can come up with receipts that you didn’t actually pay for just by picking them up off the ground or borrowing them from friends. So, if you spent $100 at Office Max, you need to have a statement which shows payment method, such as the credit card statement or debit card statement showing the charge, and the expense receipt from the store. Sound tedious? You’re absolutely right, but those taxpayers who pay for everything on debit or credit card and save their receipts find that audits go quickly and painlessly.What if you use cash? First, I recommend that you avoid using cash altogether. But, if you feel that you must, be forewarned that if you are ever audited, the IRS will be looking at your bank statements to show ATM or other cash withdrawals to prove the payment method. If you pull out $200 per week and have receipts showing expenses of $200 per week, they will probably be satisfied. But, if you pull out $200 of cash per year and have cash expenses of $2,000 during the year, they will jump to the conclusion that you are probably bringing in cash into your business and not reporting it. Reporting the expense side of a transaction and not the income side of a transaction has a name: fraud! Trust me, you don’t want them going down that road!So, as you spend your hard-earned dollars this year, keep the end in mind. Keep things simplest for yourself by having a business-only debit or credit card, and charge all expenses to that card. As I suggested before, save the receipts in a manila folder, and at year end you’ll have everything you need to both file your taxes and protect yourself if you are the lucky winner of a visit from the IRS.While I’ve also advised not to worry about audits if you are a diligent record keeper, I do have to add that audit rates have risen in recent years, especially for those with high incomes, those showing small business losses, and those in cash-heavy industries like laundromats, bars, and other personal services.Michele Knight, owner of Knight Accounting & Technology, is a CPA and QuickBooks ProAdvisor based in Dillon. For more info and to contact her, visit http://www.cpamichele.com.


Support Local Journalism

Support Local Journalism

As a Summit Daily News reader, you make our work possible.

Now more than ever, your financial support is critical to help us keep our communities informed about the evolving coronavirus pandemic and the impact it is having on our residents and businesses. Every contribution, no matter the size, will make a difference.

Your donation will be used exclusively to support quality, local journalism.

For tax deductible donations, click here.
 

Start a dialogue, stay on topic and be civil.
If you don't follow the rules, your comment may be deleted.

User Legend: iconModerator iconTrusted User