Yes. However, the IRS want you to keep records of expenses. If you were to be audited, and could not provide receipts, the expenses could be disallowed.
Tips:
Paying by check or
credit card provides proof of when the expense was paid, the amount of the
payment, and the payee. Pay your vendors by check or credit card, since these
tend to be your larger expenditures.
If you use cash for
small expenditures, set up a petty cash system by writing a check to establish
the fund. Save your receipts for petty cash whenever you reimburse yourself
from the fund, and then write checks to replenish the fund when petty cash gets
low.
If your records were
lost due to circumstances beyond your control, such as by fire, you have a
right to reconstruct your records as completely as reasonably expected. But if
you were able to get duplicate records and did not, the courts will not allow estimation
of business expenses here.
If there is no
documentation, outside testimony can also be used as substantiation, but the
IRS will review additional factors, such as the credibility of the witnesses
and the amount and quality of the evidence.
If you are taking car expenses, on eof the questions you must answer is whether or not you kept records.
Recordkeeping
A written record of
your business mileage could be a log book, diary or calendar that would include
details about how, when and where a vehicle was used for business. It's smart
to take notes about your destination and purpose of the trip each time you drive
for business; this is really what the IRS is looking for.
Write down your
odometer reading on the first and last day of each year. This way you can
compute your business-use percentage on the total miles driven. Also, you can
use your repair receipts to support your odometer reading.
In addition to
orderly records, the IRS is looking for supporting documents of all listed
property expenses. Show that your business expense records prove the following:
1) The expense is your obligation.
2) The expense is taken in the proper period.
Your accounting period will affect this timing. For cash basis taxpayers, this
means when the expense was paid. For accrual basis taxpayers, this means when
the expense was incurred.
3) The expense is a legitimate business
expense. That is, the IRS will look carefully to determine whether it was a
necessary and ordinary expense given your type of work.
