Keeping Receipts is Best Practice

I got such an interesting article in my email this morning, I didn’t even have to think about what to blog about this week.  Usually e-blasts are pretty meaningless to me, but I skim the titles just in case there’s something worthwhile in it.  And there was!

Larson v. Commissioner of Internal Revenue Service, Docket No. 21834-16.  Tax Court Memo 2018-30.  The one-sentence summary:  he owed back taxes & penalties because he didn’t provide the receipts to his bookkeeper or CPA.

So Larson only provided his bookkeeper his bank statements with notations what the checks and charges were for; no receipts.  The CPA was affiliated with the bookkeeping firm, so didn’t request additional information.  The IRS audited him (specifically mentioned are the travel, meals & entertainment, and items lost in a fire) and determined not all were legitimate business expenses.  As a result, his taxable income was adjusted, back taxes were assessed, and the IRS levied penalties under section 6662(a) and (b) for accuracy-related errors.

I know my clients get upset with me for always asking for copies of receipts.  I have one that has specifically told me “if the IRS wants my receipts, they can go to my vendor and get it themselves!  I’m not trying to hide anything.”  Unfortunately, you’re not innocent until proven guilty with the IRS.  I think you’re guilty until proven innocent.  The IRS isn’t going to find the documentation to prove your innocence in tax evasion or under-reporting.

I probably go overboard and keep every single receipt, but a lot of my business expenses are business meals, so I’m obsessive about writing on the receipt who I was with, and the purpose of the meeting.  I think that especially in categories the IRS heavily examines, you have to keep the receipts for the full seven years.  And yes, I realize that may mean getting storage space.  But hey!  Storage space for your office is a tax deduction, so there is that.  Just don’t store your clothes you KNOW you’ll fit back into once you lose 20lbs with them.