Diligent planning is essential to keeping tax obligations low for all kinds of small businesses. You don’t want to wait until the very end of the year to start planning next year’s tax strategies. Rikard & Neal CPAs, PLLC, a Memphis, TN CPA, is highly experienced in tax planning and compliance for small businesses.
Most ordinary and necessary business expenses are deductible as long as you have the proper documentation. If your return is audited, the IRS may require that you show the type of item purchased and that payment was made. Here are some examples of acceptable documentation.
A canceled check can be used as proof of payment if it has the name of the payee and shows the cancellation on the back. The IRS also accepts highly legible images of checks if you don’t have your checks returned.
Credit/debit card transactions
You must have an account statement that shows the amount of the charge, the transaction date, and the name of the payee.
Electronic funds transfers
The IRS requires an account statement that shows the amount of the transfer, the date the transfer was posted to the account by the financial institution, and the name of the payee.
You must have an invoice or some other form of documentation showing what you purchased. Canceled checks, credit/debit card statements, and records of electronic funds transfers only provide proof of payment.
Cash register receipts
If you receive a receipt with no details of the items purchased, write a description of the items on the slip. As long as the purchase is for a relatively small amount, the IRS should accept it.
If it’s not self-explanatory, make sure you write the business reason for your purchase on the invoice or receipt so you’ll be prepared for any questions from the IRS. And be aware that there are separate substantiation rules for travel, entertainment, and auto expenses.
Whether you need individual or business tax advice, give us a call at 901-685-9411. We’ve got the business tax planning answers you’re looking for, so don’t wait.