Prove Payment at Tax Time

Under tax laws, you must have receipts or other physical proof of a purchase in order to deduct business expenses. But what if you're missing some of your payment records? Here's what to do now, and how to avoid the problem in the future.

April 1, 2011

Ask for another copy.

Request duplicates of missing receipts from your bank  or credit cards, or duplicate invoices from vendors.

Look at financial statements.

For missing travel and entertainment expense receipts, gather up your credit card statements to see which expenses were for business. You can probably even use those statements in lieu of the receipts, but check with the IRS first, says tax attorney Sandy Botkin.

Dig into your calendar.

For travel costs, if the statements by themselves don’t give you enough information to figure out what portion of your travel you spent on business, refer back to your daily calendar to see with whom you had appointments.

Scan everything.

If receipts for goods or services fade and become unreadable, your credit card statement might be sufficient to validate your expenses. But hold on to the receipts anyway, faded as they are, in case the IRS wants to see them. To avoid this problem, scan those receipts into a computer file when you first get them; the IRS will accept the scans, Botkin says.

Remember your guests.

On restaurant charges, you’ll need to do more than just pick out the ones that were business-related; you’ll need to remember who was there with you and what your business was.

Excerpted from "Small Business Tax-Time Problems Usually Result From Mistakes, Omissions Made in the Past," The Associated Press, Jan. 20, 2011.