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NathanShields

August 27,2015

Documenting Tax Deductible Items

Documenting your tax deductible expenses is crucial to have inthe event of an IRS audit. The IRS requires you to keep adequaterecords to support each deduction. Written or computer preparedevidence is more reliable than oral evidence. You cannot deductamounts that are approximate or estimated.

Often when preparing a tax return, a client will say “I don’t haveany documentation so I can’t deduct it.” With today’s technology,it is easier than ever to document and get the deduction you areentitled to. An easy way to keep the necessary documentation isto take a picture of the receipt with your phone.

An example of documentation in action is a lunch meeting with aclient. To properly deduct the meal you need the date, amount,location, who was there, and a brief note about what the meeting was for. The receipt that you receive will have thedate, amount, and location. If you write down on the receipt who was there and what it was for your documentation isdone. But what happens if you lose the receipt between the time of the lunch and the IRS audit 2 years later? Thededuction could be disallowed because you don’t have adequate documentation.

A solution to this problem would be taking a picture with a smartphone of receipts. You can then have your phone setto automatically upload your pictures to Microsoft’s One Drive every time you connect to Wi-Fi. If you are usingQuickBooks Online you can enter the transaction into QuickBooks from your smart phone, and take a picture throughthe QuickBooks Online app. The picture is tied to the transaction in QuickBooks. You are then able to see the picturewhen you open that transaction on your computer or tablet.

There are also a number of apps available to make tracking mileage easy. A quick search on Google Play showed abunch of apps that are free, or cheap to buy. If you are using One Drive, you could create a spreadsheet that is savedon One Drive that you can keep up –to-date easily. If you like taking pictures, an option would be to take a picture ofyour odometer with something indicating the date and what the business purpose was. Then the picture can beuploaded to the cloud and moved to the correct folder.

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