It’s tax season, which means we need to get in receipt documenting mode. Keeping track of receipts and accounting for everything to the last penny in a carefully laid out spreadsheet or app is a headache — but keep in mind that it’s receipts that justify getting our money back from the government when appropriate.
“We remind our clients that receipts support their deductions,” said Brian Zink, CEO and founder of No Upfront Tax Relief.
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When you think of it that way, it’s a little more motivating to keep track of your receipts all year long, as opposed to scrambling at the last minute to gather what you need come tax season. So on that note, which receipts actually matter to the IRS and which are, well, trash for the shredder? GOBankingRates spoke with CPAs to find out.
Also see six money hacks to make doing your taxes easier.
Gene Bott, CPA, tax advisor and partner at Tax Hive, presented a four-step analysis to determine whether a receipt is valuable IRS material (potentially) or junk to be safely discarded.
Ask yourself the following questions.
Is this a big expense? “If it’s a big expense, always save a digital or physical copy of the receipt,” Bott said. “The larger the expense, the more likely the IRS or a state is to require a copy of the receipt to justify a deduction.”
Is it related to a sensitive deduction? “Sensitive deductions include charitable contributions, meals and travel expenses, and unusual purchases,” Bott said. “These are other areas where the IRS or state is more likely to ask for better clarification, including receipts and an explanation. So, keep those receipts.”
Is it from a company where it’s hard to tell what was purchased? “Think of companies like Amazon, Walmart and Target,” Bott said. “If the company from which you are purchasing could fit multiple categories, you’ll want that receipt to prove what you bought and why it’s deductible.”
Is it something that may or may not have a sales tax issue, where states are likely to question whether or not you pay sales tax? “State sales tax audits will often work with bank and credit card statements, but if it’s from a company where they won’t know if sales tax is typically charged, a lack of a receipt can really hurt you,” Bott said.
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One important thing to note with receipts and tax filing: You are not expected to provide receipts or copies of receipts in your initial tax return. The point of keeping receipts is to have backup proof if a deduction or loss is questioned later by the IRS.
