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I'm contemplating if I should save my paper receipts or not. I charge everything to my business credit card.

During an IRS audit, can you claim a credit card charge as a legal operating expense or do you have to prove it with a physical receipt?

Currently I use expensify.com to document all my expenses, but I don't take a picture or keep a copy of the physical paper. I just document it by going through each transaction and giving a comment of what the purchase was for.

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    FWIW My employer also uses Expensify. The app makes it trivial to take a photo of the receipts. That does not help you currently, but consider making use of that feature in the future. – Freiheit Apr 5 '18 at 21:36
  • Part of an expense tracking apps job is to track expenses in a way that will keep the IRS off your back, for any given app see if that app has tools to help make the reporting easier. Even if you did not capture the receipt in Expensify did you enter some details about the expenses in a report? That could help meet the burden of proof. Does the expensify wiki or knowledge base offer any remarks or reports to help report to the IRS? – Freiheit Apr 5 '18 at 21:38
  • great question, let's see some great answers ! – Fattie Apr 5 '18 at 22:07
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The answer unfortunately is not black and white.

The IRS website defines the burden of proof as follows:

Generally, taxpayers meet their burden of proof by having the information and receipts (where needed) for the expenses. You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement. You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses. Additional evidence is required for travel, entertainment, gifts, and auto expenses.

https://www.irs.gov/businesses/small-businesses-self-employed/burden-of-proof

While a credit card statement will show the supplier of the item in question, it will not show details of the item itself.

Credit card statements will show almost the same thing as cancelled checks, with the exception that a check normally has a memo field where you can describe what the service is (which importantly is accepted by the receiver of the check).

As a result you could make arguments either way. On one side, one could say that the credit card statement is adequate documentary evidence, while on the other, one could say that the annotations could be made-up, and there is no way to check them to see if they are true.

Unfortunately if you and the IRS disagree, you would have to take the matter to tax court and get a decision - probably too expensive to do to be worthwhile. You might just have to be prepared to say: "okay, I accept that these are inadequately documented, here is a check for the tax that I should have paid on these items".

I would suggest that if keeping all of the receipts are too much of a burden, that you record receipts for things that are potentially an issue (large amounts, items that are unusual, etc.). While say, a single transaction from Staples around the price of copy paper, annotated as "copy paper" probably doesn't need a receipt to back it up.

Some people implement a policy such as: receipts for all transactions over $20; just so that during an audit, the question of having inadequate documentation is never raised, and if it is (the auditor today thinks the threshold should be $15) the impact is not so great.

  • hi @xirt, would you say that in fact it is best to keep every paper receipt - is that correct? What is the situation on this? – Fattie Apr 5 '18 at 22:08
  • It would seem that the answer to the specific question "During an IRS tax audit, are credit card charges without a receipt a valid proof of expense, or do you need a physical copy?" is unfortunately basically No .. is that about right? – Fattie Apr 5 '18 at 22:09
  • Different companies supply different amounts of information to credit card companies when placing charges. I've had plane tickets show up in credit card statements complete with flight numbers. I've also had a mystery charge which I narrowly avoided filing a charge-back for because the name on the statement bore no relation to the merchant (the merchant also had no idea what the name was, but the merchant had gotten paid and the transaction was otherwise correct). I'd guess that the usability of a credit card statement would depend upon what information it happened to contain... – supercat Apr 5 '18 at 22:22
  • ...which would typically fall somewhere between those extremes. – supercat Apr 5 '18 at 22:23
  • I would go with the - only over $20 policy myself, and probably just keep scans of receipts rather than actual receipts. – xirt Apr 5 '18 at 22:56

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