Why Your Credit Card Statement May Not Prove a Tax Deduction

5 Jan

If you believe (or you’ve been recommended by your tax preparer) that trying to keep your credit card statements is enough by itself to show company tax deductions, you could be in difficulties if your return ever comes up for examination.

That is the message I received recently at the IRS national telephone forum on record keeping demands for modest business owners and self-employed entrepreneurs.

Please don’t start shredding your credit score card statements they are certainly much better than no documentation at all and in some circumstances they may possibly be adequate proof. The point of the IRS warning is that in many instances, you will also need supporting documentation to demonstrate your tax deduction.

And, yes, I recognize that for some purchases, there may not be any other documentation. Some vendors who you purchase from on-line or by telephone do not supply composed purchase confirmations. In people cases, I suggest you make your personal notes about this kind of purchases and keep them in your files.

Keep in mind that the IRS says that for an expense to be deductible for your organization, it has to be normal and needed and for a organization objective. A line on your credit score card statement that says, for example, that you invested $54.89 at Office Depot on October 15, 2008 does not prove that you purchased office supplies. You could just as nicely have bought computer video games for your youngsters.

Which is why the IRS suggests that you hold the original retailer receipt that will demonstrate specifics of the different things that complete the quantity on the credit score card statement. And it would not be a bad concept, they say, to make a note on the receipt with regards to the organization function for the products.

If you have been scanning the receipts into your laptop, the IRS says that’s Okay. But they add that they know how easy it is to mess around with electronic files. If they contact you in for an audit, they’ll test the authenticity of your scanned documentation by getting you supply original copies of some of the receipts.

So you most likely should just preserve all of them. If you’re concerned that the unique paper might deteriorate and turn into unreadable, make a copy of it as soon as you get it and file the copy with the authentic.

This guidance may possibly not conserve trees, but it could conserve you from an unpleasant audit and a increased tax bill.

Just saying.

No comments yet

Leave a Reply