Bottom line is, for the SCH C you're going to claim what you want. But if the IRS has reasons to audit you down the road and you can't prove those expenses, they will be disallowed. That will increase your tax due on that audited return. Then in addition to that additional tax due, you'll also pay interest and possibly other fines and late fees. I've been self employed for 13 years now, and I keep all my paperwork for everything - I don't care how small the transaction is. Three rules to always keep in mind when dealing with the IRS, and especially on an audit.
- You are guilty until proven innocent.
- The burden of proof is on the accused (that would be you) and not the accuser.
- If it's not in writing, then it did not occur.
Generally if there's going to be an audit it will be 2-3 or more years after the return has been filed. One can get audited on just a random draw. Or one can get audited on a review when the IRS targets tax returns that meet a certain criteria. As an example for the latter, one year they concentrated on charitable donations. They narrowed it further by picking those who claimed donation deductions where the difference between deductions claimed one year, was more than 50% higher of what was claimed in the prior year. There was other criteria too, but still a lot of folks got audited. Those who could not "prove" their donations or the value of the donation, had the donation amount claimed either disallowed or reduced.
