10/ 01/ 2004
by Jeffrey Moses
The IRS requires a record of all purchases that will be deducted (expensed) on a business' tax return. As stated in Publication 583, Starting a Business and Keeping Records: "It is important to keep these documents because they support the entries in your books and on your tax return." But does that mean you must find a way to organize every receipt and piece of paper that comes into your possession during the year?
Many small-business owners believe that it is necessary to keep a cash-register slip or other type of written receipt as a supporting document for each business purchase. However, this is not always the case. While it's best to receive and store a cash-register or handwritten receipt for each purchase, businesses expenses may still be deducted when other types of supporting information are obtained.
Supporting documents may include not only cash-register tapes, but also canceled checks, paid bills, invoices, account statements, credit-card sales slips and credit-card statements. Additionally, petty-cash slips are adequate to prove purchases made with small cash amounts.
Publication 583 mentions the efficiency and accuracy of establishing a business checking account and using a checkbook to record all business income and purchases. Checks written for business purchases will be the main source of your own record keeping and for tax recording purposes. The publication suggests writing accurate and complete notations within the checkbook when making deposits (date, amount, payer, invoice number, etc.) and when writing checks (date, amount, payee, invoice number, whether check is personal or business, etc.).
Travel and entertainment expenses are described in Publication 463, Travel, Entertainment, Gift, and Car Expenses. When traveling, you should keep written records of all expenses that will be deducted. Receipts, canceled checks, bills, credit-card slips and credit-card statements all serve as documentary evidence. Records for expenses during travel are not required if:
- Meals or lodging are covered under an accountable plan and a per diem allowance method is used;
- Expenses, other than lodging, are less than $75; and
- A receipt is not readily available for a transportation expense.
Limitations and other rules relating to expenses for entertainment, gifts and car expenses should be carefully reviewed and applied to a business' specific situation.
When possible, obtain a cash-register receipt for all purchases that you will eventually be deducting as a business expense on your tax return. It's not always necessary, however, to have a receipt in order to deduct a purchase. Other supporting documents such as those described above should be adequate in most instances to prove that a payment was made, and that the payment was for a legitimate business expense.
