Is the tax code complicated?
When you read the word, “taxes”, how do you feel?
If you are like many, you feel anxious, frustrated, and angry when you think of the IRS and all their rules. So what are you to do? Well, for me, educating my clients is one of my top priorities. I strive to take the complex tax law and interpret it in English so that it is easier to understand and implement. Here are some practical questions that clients have asked in the past and the simple answers. I hope you can identify with at least one and take action to audit proof your situation.
A client recently asked me, “I heard that if I am audited, I can show the IRS my credit card statement and that will be my proof of my business deductions.” No, this is false. If you are audited, you need to show the actual receipt of what you purchased at each location. If you don’t, the auditor can say that you purchased school supplies at Staples instead of supplies for your office and disallow your deduction.
A client recently asked me, “I have scanned all my receipts. Can I shred my paper receipts now?” Yes, you can shred your original receipts, but be super sure that your scanned receipts are legible. If they are not and you are audited, you will not get the deduction. Also, make sure you have several backups of the scanned documents. Have one onsite and one offsite, in case of fire or flood.
A client recently asked me, “I had a pipe burst and all my tax documents were damaged. What can I do?” The IRS allows you to recreate your documents if you lost them in a fire, flood, earthquake, hurricane, or tornado. One thing to think about is storing your documents in a fire-proof, water-tight container.
A client recently asked me, “I had a friend tell me that I don’t need to save any receipt under $75. Is this true?” Yes and no. The IRS has a tax code that says you do not need a receipt for any expense under $75 for travel, entertainment, gifts and listed property. (Listed property is: cars, computers, printers, cameras, video equipment [cell phones used to be listed as property prior to 2009]). However, I keep them all because I feel my credibility increases if I have the proof of all deductions.
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