Plan Ahead to Successfully Prove Deductions During an IRS Audit

by Tom Zeiders Taxes and the IRS

An IRS audit is an experience most people would rather avoid but planning ahead with regard to documenting deductions during an audit either individually or in connection with a business goes a long way to potentially minimizing the negative impact of the audit. Deductions must be proved in order to be taken. This means deductions probably will not be accepted by the Auditor without a receipt or other documentation that the deduction was paid. The following tips are useful to keep in mind:

  • The IRS doesn’t allow all expenses to be taken as deductions. There are rules depending on the type of expense taken. It is important to work with a reputable tax preparer who who knows the rules and can prepare the return correctly.
  • The easiest way to prove a deduction is to keep a receipt that shows the expense was paid. Invoices are not sufficient because they are only the bill that is sent indicating that payment is owed. A receipt shows that the invoice was paid.
  • Cash register or credit card machine receipts fade over time. Its good practice to either copy the receipts or scan them to a computer and back up your hard drive so if needed several years down the road, they are legible.
  • If an item being claimed as a deduction was purchased with cash, the purchase details should be clearly stated on the receipt.
  • It is best to track expenses in a log or journal as the expense are incurred. Trying to recount expenses accurately after the fact can be problematic.
  • Finally, receipts should be kept together in one place, whether it be in a file folder or large envelope or box, in an organized manner. Receipts should be stored in a safe place so a vehicle glove compartment, or buried in a junk pile in the back seat are not ideal given the risk for loss.

If you are dealing with the fallout from an IRS audit or would like to discuss any IRS matter with a tax attorney, contact the Zeiders Law Firm at (918) 743-2000 or contact us for a free consultation.