SR Glossary: “Documentation”
One of the first terms you might encounter if you or your company is audited by the IRS is a request for documentation of expenses, or proof of receipts. In years past, this was a simple request, as receipts were always given in paper-form either in your hand or packed in the shipping carton. You placed the receipt in your filing system, normally in a folder in a file cabinet. If you were audited by the government (federal, state, or city) and were asked for documentation of a payment, you would simply go to the file cabinet and retrieve the receipt.
Today, methods of purchasing have been widely expanded and documentation can look much different than it used to look. We use credit cards, or shop online with a credit card, perhaps receiving an invoice and acknowledgment of purchase over the Internet. Does this mean we must also change the way we store receipts?
You might presume a credit card statement containing a list of all of purchases will suffice. Unfortunately a list of purchases does not satisfy the government’s definition of documentation, which is a receipt with a detailed description of what was purchased.
Solution: Electronically scan and store all of your receipts, no matter how small or odd-shaped, in your computer. Create an electronic file cabinet to organize your receipts. Alternatively, print and file all electronic receipts in your paper file cabinet. Should you be audited, you will no doubt be very grateful that you took the few seconds to maintain a single filing system rather than having them in numerous places. Normally in an audit if you cannot provide the appropriate documentation, you are not allowed to take the deduction for that purchase. This simple maintenance idea can save you headaches and avoid increase in your taxes!
How do you file your receipts? Have you discovered a fail-safe system that works for you? Share your techniques and inspire others who may not have yet solved the documentation dilemma.