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?
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.
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.
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!
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.
Still have questions?Make a post