In some cases, the IRS or state taxing entity will send a request for a tax audit. A tax audit is an assessment done to ensure the financial information you provided in your tax return is correct. All you’re required to do is provide evidence, such as receipts and financial statements, that the information is accurate.
So, what do you do when you’ve lost your receipts for your taxes and tax deductions? This guide answers common questions about audits without receipts and offers tips for reconstructing records without receipts.
You’ll know when you’re being audited when you receive a mail notification that you’ve been selected for an audit. This written correspondence, typically called the “Notice of Audit and Examination Scheduled,” will be sent to your last recorded address. It informs you that you’re being audited and states the particular items on your return the IRS wants to review. It may also include the records you should provide for review and submission deadline.
The IRS states that it’s imperative to provide proof of certain expenses to deduct them. Generally, receipts serve as the best proof of expenses. However, other documentary evidence, like bills, canceled checks, or auto, travel, entertainment and gift expenses, may also be suitable evidence. Some deductions you can claim without a receipt include:
If you lost your receipts for your deducted expenses, you may be able to use other types of proof of payments, such as bank statements and mileage records. Rather than try to avoid the IRS audit, it’s important to try to reconstruct those receipts or find alternatives.
The potential consequence of not providing proper documentation is an accuracy-related penalty of 20% of the portion of the underpayment of tax. The IRS will charge interest on the penalty until you pay the amount in full.
Fortunately, there are various ways to justify your reported expenses through alternative means if you don’t have receipts. The federal court created the Cohan rule exactly for these circumstances.
This rule is named after Broadway star George M. Cohan, who filed his taxes with estimates of his expenses when he didn’t have documentation and proof. The court agreed that the claim was still acceptable since the expenses were credible and reasonable.
If you can’t find your receipts, here are six other suitable ways you can support your claimed expenses.
Check your bank account statements to find payments you made for business purposes, along with the dates and recipients. You can also use your check register, credit card statements and canceled checks to find relevant information and estimate the total costs and receipts.
Another alternative is to request new copies of receipts and invoices from service providers and suppliers. This is generally a simple process that involves contacting the supplier or venue to ask for a copy. However, you may need to pay a small fee to get a second copy.
Look through your emails for communications about business purchases and receipts. Use the search feature to enter different keywords and recover as many receipts as possible.
Information from your business calendar and appointment books may reflect the frequency of service, number of clients and travel timelines. You can then check if these dates correspond with your expenses and provide them as proof. Use the details you find to create summary counts to apply an average cost that can be used to estimate the total receipts.
Check all your travel accounts for flights, hotel rewards and food to find additional evidence of your travel and purchases while traveling. Check your online map tools to reconstruct mileage calculations. Combine this data with your list of locations traveled and number of trips to support your claimed total business miles driven. Make sure to consider periods of no travel when estimating mileage.
Check your phone for additional information you may have missed. For instance, checking your phone location records may help you recall places you traveled during time periods you’re uncertain about. Social media apps may also provide specific location data. Your phone records may also help you establish service dates, while your call history can help you develop a list of clients served during particular time frames.
If you’re missing a few receipts, it’s beneficial to get tax audit representation to guide you through the auditing process and help you find receipt alternatives. At Polston Tax, we offer tax audit representation services to inform you of your options and provide valuable audit presentation strategies for reconstructing more accurate records. Some of the top benefits of working with Polston Tax include:
Understanding your rights and options concerning audits is important to gathering information with a clear mind and knowing you’re compiling the right documents. As a tax resolution and accounting firm, Polston Tax aims to ensure clients are well-informed so that they provide all the necessary documents for a beneficial outcome. Our extensive knowledge of tax laws and the tax code helps us ensure this. For a free consultation, contact our knowledgeable professionals today.
