IRS Requirements for Receipts

Tax deductions are a big deal to both the Internal Revenue Service (IRS) and the individual. Taxpayers often consider the requirement of paying personal income taxes to be an onerous burden that can be greatly mitigated through the use of deductions. In recognition of this fact of life, the IRS has established a standard of proof of claimed deductions known as “adequate records.” Deductions are normally allowed without question as long as adequate records are maintained to prove each deduction’s legitimacy.

Proof of Expenses

The first thing to keep in mind to avoid trouble with the IRS is to never estimate or approximate your expenses and present them as testimony from memory. Should you ever have your tax return audited, these will not be considered adequate records and it’s likely all deductions you claimed by that method will be thrown out, resulting in an increased tax burden. A written record of expenses is the preferred method of proof, though records prepared on a computer will also suffice. This written record, combined with documentary evidence such as canceled checks, receipts or bills, is considered to be adequate record-keeping.

Adequate Records

When choosing what type of documentary evidence to provide, keep in mind that the IRS is looking for a piece of paper that includes the amount, date, place and essential character of the expense. For example, a hotel receipt is considered acceptable if it contains a) the name and location of the hotel, b) the dates you stayed there and c) itemized charges for lodging, meals and telephone calls. A meal expense claim from a restaurant should have the name and location of the restaurant, the number of people served and the date and amount of expense. A canceled check and bill together are good proof of expense, but to have only one or the other as a receipt is not considered adequate.

Documentary Evidence Exceptions

There are three separate cases where documentary evidence in the form of a receipt is not required. The first is if you have travel expenses away from home that are accountable to your employer, and you use the per diem allowance method to deduct a standardized amount for each day away. Second, receipts are not required if the deduction amount is less than $75, not counting lodging. The last method relates to transportation expenses, normally public in nature such as a taxi or bus. These types of businesses do not always readily provide receipts to passengers. The IRS acknowledges this fact and is more lenient in requiring a receipt for that mode of business travel.