While keeping canceled checks and debit card statements makes practical record-keeping sense, it usually doesn’t cut it for tax filing purposes. Uncle Sam likes to see more detail when it comes to justifying your tax-deductible expenses. Even if you’re entitled to certain write-offs, you need receipts to prove where the money went. Statements showing that you spent the money aren’t usually enough.
Proof of Deductions
Generally, the Internal Revenue Service (IRS) requires that you have receipts to back up the expenses you deduct on your income tax form. Although bank statements and debit card statements are proof that you spent the money, billing statements don’t show what you spent the money on. When it comes to tax deductions, you have a better case if you have receipts matching the expenses you claim. You don’t necessarily need to keep the original paper receipts since the IRS accepts scanned receipts, too, reports Entrepreneur. All the tax guy cares about is that you are able to reproduce the records if he asks.
Keeping your receipts organized can be time-consuming but worth the effort come tax time. Jotting down notes on sales receipts helps you sort out your allowable expenses. It also makes sense to keep all of your receipts throughout the year, no matter how small an expense. Although IRS Publication 463 says you don’t need to keep receipts for deductible expenses less than $75, it doesn't hurt to keep even those receipts just in case, suggests Entrepreneur. In fact, it’s a good idea to keep your receipts for at least six years in case the IRS decides to audit you later.
The IRS typically disallows deductions if you don’t have the paper to prove the expense. Even if you can produce a canceled check or debit card statement, the IRS might say that it’s not enough to entitle you to the deduction. In some cases, though, your word may be enough if you take your case to the U.S. Tax Court, reports Forbes. If you seem honest and credible, your word alone may get you the deduction, especially if you sign a written statement under penalty of perjury.
If the IRS has questions about expenses you claim on your tax return, but you don’t have the receipts to support the deductions, you may have to pay a penalty as well as more in taxes. When it comes to proving expenses, canceled checks and debit card statements serve as proof of payment, but cash receipts list the items you purchased. When examining deductions, the IRS uses receipts to determine if an expense is allowable. Sales receipts also show the date of purchase.
Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.