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HPC Blog

July 6, 2018 at 8:34 AM

Do you need a receipt for all deductions?

Written by Timothy Cofrin |

Tax and Compliance

shopping_receipt_by_flyingtophat-d5l0kny

In addition to proof of payment, the IRS generally requires that you keep documentary evidence, such as receipts, canceled checks, or bills, to support your expenses. That's a lot of paper! Fortunately, there are some exceptions.

For travel, entertainment, gifts, or transportation expenses, the IRS guidelines state that documentary evidence is not needed if either of the following conditions apply:

  • Your expense, other than lodging, is less than $75.
  • You have a transportation expense for which a receipt is not readily available.

What this means is that if your expense is less than $75 and it is for travel, entertainment, transportation, or gifts, the IRS does not require you to keep a receipt (unless the travel expense is for lodging). The $75 limit is waived if the expense is for transportation and you can't get a receipt. For hotel expenses you always have to get a receipt.
If you expense meets the above requirements, the IRS will take your word that the expense is a valid business deduction, as long as you keep a written or electronic record of the following:

  • Amount
  • Date
  • Place or Description
  • Business Purpose/Relationship

(The above list will usually do, but is simplified--for the full details check out Table 5-1 of Publication 463.)

If you use Xero for accounting, it's easy to record this information on a daily basis. Just connect your accounts using the bank feeds feature. When Xero downloads your debit card or credit card transactions from the bank each day, the amount, date, and payee will already be there. Just add the business purpose and relationship to the description and click "OK."

Xero bank reconciliation example

For cash expenses, you can create a bank account in Xero called "Petty Cash" and record those expenses as Spend Money transactions in that account. Offset the expenses in the Petty Cash account by coding ATM withdrawals as transfers to Petty Cash.

Remember, for most expenses over $75 (and lodging expenses of any amount), you still need to hold on to your receipts.

 

Source: IRS Publication 463. Featured image by flyingtophat.deviantart.com.

For more information on meals receipts specifically, also see our blog post:

Meals – How to tell if they are 50% or 100% deductible

To learn more about HPC and how we can help you with receipt management and compliance visit our website home page at www.hpccpa.com

Timothy Cofrin

About Timothy Cofrin

Tim is a Tax Accountant who specializes in client organization around tax matters and helps companies gain and maintain government compliance with business registrations, sales taxes, income and other tax returns, and other miscellaneous documents.