Save Those Receipts!

Published On: October 16th, 2023Categories: Accounting, Taxes

When it comes to taking qualified deductions on your tax return, having proper documentation to prove your expenditure is a must. As the end of the year approaches, now is the time to make sure that you have all of your documentation. Here are some typical areas where taxpayers often fall short, costing them plenty during tax filing season and possible IRS audits:

1. Cash donations to charity

4. Non-cash contributions

Donations of cash need to be supported by a canceled check or a receipt from the organization. Donations of $250 or more MUST have written acknowledgment from the charity at the time of the donation — a canceled check and bank statement are not sufficient.

Additional support is required for non-cash donations to prove their value. This includes creating a detailed list of items donated, their condition, and estimated fair market value. While this level of detail is not required for small donations, it’s always good practice to take photos and create a detailed listing of items donated.

2. Investment purchases and sales

5. Copies of divorce decrees, alimony, and child support agreements

If you bought or sold an investment, you need to know the original cost. Today’s regulations require brokers to report the cost of sales to the IRS, but many of these historical costs are reported incorrectly. So review your brokerage accounts and correct any errors. It is very difficult to defend yourself in an audit when records reported to the IRS are in error.

 There are often conflicts between two taxpayers regarding who is claiming a child on their tax return. Do you have the necessary proof to defend your position? The same is true with alimony and child support. Keep these documents in a safe place and be ready to use them if necessary.

3. Copies of financial transactions

6. Mileage documentation

Keep copies of documents from any major financial transaction. This includes real estate settlement statements, refinancing documents and any records of major purchases. These documents are necessary to ensure your cost basis in the property is properly recorded. The documents will also help identify any tax-related items like mortgage insurance, property taxes, points and possible sales taxes paid.

Tracking deductible miles is one of the most commonly overlooked documentation requirements. Properly recording charitable, medical and business miles can really add up to a large deduction. If the record is not available, the IRS is quick to disallow your deduction.

If you aren’t sure whether a document is important, it’s best to retain it and file it in a way that you can easily retrieve it if needed at a later time.

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About the Author: Anthony Michelotti, CPA

One word to describe Tony Michelotti? Driven. The Spring Grove, Illinois native earned his Masters in Accountancy Degree from Western Illinois University and passed the CPA exam in 2009, joining Eccezion that same year. A partner at the firm, he works with a variety of clients, everything from income tax to auditing, and is a go-to person for helping small businesses set up and understand QuickBooks and accounting systems.