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How to handle an IRS tax audit without all receipts

On Behalf of | Jun 5, 2022 | Internal Revenue Service

Sometimes the IRS audits your tax returns as an individual or a business, especially if you are self-employed or your tax calculations are wrong. The audit ensures that all income is captured and that you have claimed the right tax deductions. Your best defense is having a clear and accurate record of your cash flows and retaining all your receipts.

You must substantiate your expenses

The IRS requires you to provide proof of every legitimate business expense deducted on your tax returns. In case of an audit, you will be required to recreate a history of the expenses you made at the time. You should always do this when preparing your tax returns and not make a guess or estimate of your expenses. This ensures that you make entries that you can prove if an audit is requested.

However, you may misplace your receipts or forget to pick them up when you make your expenses. If you receive communication from the IRS that you are subject to a tax audit and do not have all your receipts, there are ways you can prove that you actually incurred the said expenses. The IRS will also give you a chance to prove that you spent the cash by other means.

The Cohan Rule for business expenses without receipts

The Cohan Rule allows you to substantiate your business expenses during tax deductions where you do not have receipts. However, the IRS does not permit deducting full amounts, but will calculate the minimum standard amount for the item or service you are claiming a deduction.

Ask for copies of invoices and receipts

You can substantiate your expenses by contacting suppliers or service providers for copies of receipts or invoices. Most businesses use automated invoicing and receipting systems that can produce copies. You can also support payments with a bank statement showing when you made the payment in question.

Check communications you made with vendors

It is also good to check any communication with vendors via emails or meetings you have set up via emails. Sometimes there is a copy of the invoice or a confirmation of the purchase.

Check vendor appointments on your calendar

You may also use your calendar to determine dates when you traveled for a business meeting or to meet a vendor. You can then correlate the information with other evidence provided above. Remember, you will be required to show the value of business importance of any trip you made that you have claimed the deductions for.


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