Receipts for business expenses under $75.

[lorey-campese]

I worked as a freelance contractor for 7 months in 2013. I am comparing the receipts that I saved and my credit/debit card statements and I realize that I didn't save receipts for many business expenses. It was my first time freelancing and I didn't exactly know the rules of the game.

Many of the expenses are for $10-$50. I've read on the IRS website that if you have adequate evidence, you don't necessarily need a receipt for expenses that are less than $75 (entertainment, office supplies, etc). (http://www.irs.gov/publications/p463/ch05.html) Is this true and if so, we evidence should I be accounting for. Specifically for business meals, will a bank statement and record of who was there, the business discusses, and other details be enough to prove the business expense?

[CHines]

Hello lorey.campese,

The IRS is what you need to go off of. If you have an expense under $75 (other than lodging) then documentary evidence is not needed. You can use your bank statement as long as it has the supporting documents to show the amount paid and the amount is for your busines.

[apeximpact]

This is INCORRECT. DO YOUR RESEARCH. Section 463 is for TRAVEL only! If you have items under $75, for example Staples purchase for print cartridges, YOU MUST HAVE THE RECEIPT!! The above "Expert" is WRONG to a large degree. I saw this coming up as a top search answer and it is wrong.

[phil1]

I have seen a few people on the internet say this is incorrect, but the irs tax code seems to directly support the original answer stated above... see <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p463.pdf">https://www.irs.gov/pub/irs-pdf/p463.pdf</a> page 25.

[javed2826]

if there is no bank transaction involved just paid cash and no receipt

[mk3562]

The "expert" Chris H is CORRECT.

The relevant passage from Publication 463 is:

*************************
Exception.   Documentary evidence is not needed if any of the following conditions apply.

    You have meals or lodging expenses while traveling away from home for which you account to your employer under an accountable plan, and you use a per diem allowance method that includes meals and/or lodging. ( Accountable plans and per diem allowances are discussed in chapter 6.)

    Your expense, other than lodging, is less than $75.

    You have a transportation expense for which a receipt is not readily available.

****************************
'

[sfbsolutions]

Section 463 is titled "Travel, Entertainment, Gift, and Car Expenses".  So when it says "Your expense, other than lodging, is less than $75." what it's really means is "Your travel, entertainment, gift, and car expenses, other than lodging, that are less than $75.

Section 463 does cover many business expenses, but it does not cover things like: Inventory, Supplies & Materials, Cost of Goods Sold, etc.  Those types of things DO always need receipts-- not for bookkeeping, but for audit protection in case the IRS decides to haunt you.

For instance, if you operate a taco truck, you don't have to keep receipts (under $75) for pumping gas in the truck, but you do need to keep receipts for the ground beef, cheese, taco shells, pots, pans, skillets, serving containers, etc. regardless of the price.  For purchases of items that are out of the norm or not obviously business related, jotting a note down on the receipt can also come in handy if you ever get audited.  

The IRS wants proof, not just that you spent the money, but that it was ACTUALLY for the business.  Back to that example...  If you buy the ingredients for your taco truck from your local grocery store, the IRS will want to see the receipt that says you bought beef, chicken, cheese, and taco shells, because without that they'll say you could have just as well bought apples, Oreos, and Cinnamon Toast Crunch for your family which obviously isn't tax deductible.  They'll always err on the side of giving you as little as possible-- so keep those receipts!

[hondoman]

The above rules are for employee reimbursements, not freelancers.

[Brooklyn-Accountant]

the under 75 is per year per type of Exp or each time you buying something for office Expense like today for 50 and tomorrow for 60?

[SweetieJean]

You are posting on a 4 year old thread.

[Brooklyn-Accountant]

i know its 4 years, but the low is still the same, and i still wan know this?

[SweetieJean]

Tax laws change over the years. Aren't you an accountant?

[Brooklyn-Accountant]

its for 2014 tax year

[kathy-scheiern]

I have been audited multiple times over the past 10 years. Most recently in 2017. I can tell you for a fact that the IRS demands 2 forms of support for EVERY expense on a Schedule C. They want BOTH the original invoice / receipt AND the proof of payment document. So an invoice and a cancelled check, for example. ANYTHING else can be denied. Actually anything can be denied - because I provide accounting and tax services for my clients and I have an online subscription to the Wall Street Journal to keep up on business and finance news that may relate to my clients. I had both downloaded invoices from the WSJ and my credit card payment documentation - so both forms of support for my business expense. But the IRS DENIED this expense - because I was not a stock investor. So the IRS can do anything they want to do. Keep ALL your paperwork, document everything, and you still can lose. But that is what happens when the IRS legally operates under a rule of law that states that YOU are guilty until you can prove your innocence (Napoleonic code) - and there is little to no recourse for a small business person who cannot afford to go to tax court to fight them.

[waltkihm]

If my client doesn't want to pay me to appeal this arbitrary ruling by the Agent, I would tell them to appeal it themselves.

Before doing this, you can ask for their Manager to review this ruling in person.

A tax attorney has written several books on the appeal process & other good stuff.