When it comes to receipts, it can be difficult to know which ones to keep or throw away. But in the event of an IRS audit, your receipts are your best defense. Always file the following five types of receipts:
Travel receipts. The IRS is well aware that small business owners travel for both pleasure and business reasons. Often they will perform audits to be sure you aren’t blurring the line between the two. Always save receipts for airline tickets, hotel rooms, meals, gas, rental cars, and so on. It’s also a good idea to keep a short log of your trips so that you can prove they are related to your business and therefore are justified as a tax deduction.
Meal or entertainment receipts. The IRS is also well aware that there isn’t always a clear line between business contacts and friends. You may sometimes find it necessary to take potential clients or business associates out to dinner, but the IRS often looks upon these deductions with skepticism. In order to back up your claim of a business-related tax deduction, make a note of who attended the dinner as well as the purpose of the meal in relation to your business.
Vehicle and associated expenses receipts. If you own a “mixed use” vehicle, which is used for both personal and business purposes, your record keeping will become a bit more complicated. Save all receipts, but be aware that you can only claim a percentage of these expenses which correlates to how often the vehicle is used for business. For example, if 40 percent of your vehicle’s use is related to your small business, then you can claim 40 percent of the cost of tires, repairs, and so on.
Home office receipts. A home office is also considered “mixed use”, so all claims related to your home office may be scrutinized by the IRS. Keep detailed records of your home office expenses, and carefully check the IRS’s rules on what expenses qualify under your home office deduction.
Gift receipts. It’s sometimes a good idea to build rapport with clients by giving gifts, but IRS rules concerning gift receipts can confusing. Keep detailed records of gift purchases, so that your accountant can easily sort which gifts are tax deductible.