Receipts required if you are audited?
May 17, 2013 6:14 PM Subscribe
As an S-corp, am I legally obligated to present receipts or copies of receipts in the event of an audit?
I am very skeptical about the cpa for my husbands s-corp. He is telling me that in the event of an audit the credit card transactions are enough proof for write-offs. I find this hard to believe as every production job I've ever worked requires me to keep and copy physical receipts of any business expense transaction. Is it common practice for companies to just use credit card transactions and not physical receipts as proof?
Is this guy full of it or is he correct? It would be in my interest if he were correct as then I could simply put all the corporate transactions on one card and personal on another to make expense tracking much easier for tax time.
I am very skeptical about the cpa for my husbands s-corp. He is telling me that in the event of an audit the credit card transactions are enough proof for write-offs. I find this hard to believe as every production job I've ever worked requires me to keep and copy physical receipts of any business expense transaction. Is it common practice for companies to just use credit card transactions and not physical receipts as proof?
Is this guy full of it or is he correct? It would be in my interest if he were correct as then I could simply put all the corporate transactions on one card and personal on another to make expense tracking much easier for tax time.
Response by poster: Yes, I agree the more info the better but I'm kind of wondering the legality to know how far astray this CPA could be leading me. For 7,000 I find his advice terrible. I asked about a particular kind of surgery as a write off and he responded "claim it and see what happens". That's pretty expensive for ambiguous advice that I won't use.
posted by JJkiss at 6:33 PM on May 17, 2013
posted by JJkiss at 6:33 PM on May 17, 2013
One way this gets messy is if you get a sales tax audit. I handle bookkeeping for the business my husband and I own, and he is utterly atrocious at giving me receipts for business card purchases. I can enter these purchases into my accounting program directly from the statement, but I can't prove that sales tax was paid because I don't have the receipt, so I have to enter the total without getting credit for taxes paid. When I remit quarterly to the government, I'm paying the difference between the tax I collected on sales and the tax I paid for all expenses for that period. If (or when, really) an auditor comes in, and if I had claimed tax paid without proof, I could be in serious trouble. The solution of not claiming tax paid is correct, but it also means that we're remitting more to the government than is really necessary. Has the CPA addressed this side of things?
posted by mireille at 6:39 PM on May 17, 2013
posted by mireille at 6:39 PM on May 17, 2013
Response by poster: He has definitely not touched on anything like this or even close to it. I'm unclear why sales tax isn't reflected in the total that's charged on a card though. Really good issue to bring up: amount reflected on card v amount reflected on receipt.
posted by JJkiss at 6:49 PM on May 17, 2013
posted by JJkiss at 6:49 PM on May 17, 2013
There is no right or wrong answer here. It depends on the auditor.
You have to think about this from the point of view of the auditor. Their job is to determine if the business deductions you take are legitimate. Does your credit card report provide sufficient information? Maybe and maybe not.
Let's say that you have $25,000 of business deductions. Without any documentation, the auditor has no idea if you spent that on your business or if you just bought a car for yourself. So you show them the credit card report and it has $200 here and $300 there, totaling up to $25,000, just as expected and all from places like Staples, but not from Safeway grocery or the liquor store. So it might be sufficient.
But if a lot of the transactions are from ambiguous sources like Walmart, it might be hard to determine if you bought groceries for yourself or some office supplies for your business. In that case a receipt shows exactly what was purchased.
I would be inclined to keep receipts for anything more than $100. And how hard is it to keep receipts? At the beginning of the year you create a new manila folder for receipts. You just stick the receipts in that folder. No need to have any fancy filing system. If you are audited, there's a 90% chance that just the credit card report is sufficient. But if the auditor decides to be fussy, just pull out the folder of receipts and plot it on the desk. The auditor will probably just check a half dozen random receipts to see if they match the credit card report and be done with it.
You only need to keep receipts and credit card reports for three years from the due date of the return. For example, for your 2012 return filed in April 2013, keep your receipts until April 2016 and then pitch them.
posted by JackFlash at 6:56 PM on May 17, 2013 [1 favorite]
You have to think about this from the point of view of the auditor. Their job is to determine if the business deductions you take are legitimate. Does your credit card report provide sufficient information? Maybe and maybe not.
Let's say that you have $25,000 of business deductions. Without any documentation, the auditor has no idea if you spent that on your business or if you just bought a car for yourself. So you show them the credit card report and it has $200 here and $300 there, totaling up to $25,000, just as expected and all from places like Staples, but not from Safeway grocery or the liquor store. So it might be sufficient.
But if a lot of the transactions are from ambiguous sources like Walmart, it might be hard to determine if you bought groceries for yourself or some office supplies for your business. In that case a receipt shows exactly what was purchased.
I would be inclined to keep receipts for anything more than $100. And how hard is it to keep receipts? At the beginning of the year you create a new manila folder for receipts. You just stick the receipts in that folder. No need to have any fancy filing system. If you are audited, there's a 90% chance that just the credit card report is sufficient. But if the auditor decides to be fussy, just pull out the folder of receipts and plot it on the desk. The auditor will probably just check a half dozen random receipts to see if they match the credit card report and be done with it.
You only need to keep receipts and credit card reports for three years from the due date of the return. For example, for your 2012 return filed in April 2013, keep your receipts until April 2016 and then pitch them.
posted by JackFlash at 6:56 PM on May 17, 2013 [1 favorite]
Response by poster: I see your point. But, like merielle, my husband does not organize receipts well and he just puts all of his purchases on one card . If it's true that cc transactions are sufficient, then I need to get my husband paying with a corporate card and a personal card and allow the statements to be the bulk of my information. Right now, with him putting all purchases on one card, I have only to go through hard copy receipts to try to figure out if that amazon purchase was for production equipment or orange flavored toothpaste. They all look the same on the cc statement.
I think the best solution it sounds like is for me to divide the charge cards and keep all the receipts I can, knowing they will not always exactly match due to husband organization, but the more the better.
posted by JJkiss at 7:05 PM on May 17, 2013
I think the best solution it sounds like is for me to divide the charge cards and keep all the receipts I can, knowing they will not always exactly match due to husband organization, but the more the better.
posted by JJkiss at 7:05 PM on May 17, 2013
I'm unclear why sales tax isn't reflected in the total that's charged on a card though.
The amount on the statement is always the total - purchase plus tax. What it doesn't show, though, is the breakdown. For example, I'll get a purchase line item of $105.00. Since sales tax here is 5% I know that $100 of that is his purchase and $5 of that is sales tax. But without the receipt I can't prove that we paid that tax, and so I can't claim it.
gjc has got it, though. You want to separate business purchases out onto one card only. It's just that in my experience there's more than one reason you need to keep all the receipts you can get.
posted by mireille at 7:12 PM on May 17, 2013
The amount on the statement is always the total - purchase plus tax. What it doesn't show, though, is the breakdown. For example, I'll get a purchase line item of $105.00. Since sales tax here is 5% I know that $100 of that is his purchase and $5 of that is sales tax. But without the receipt I can't prove that we paid that tax, and so I can't claim it.
gjc has got it, though. You want to separate business purchases out onto one card only. It's just that in my experience there's more than one reason you need to keep all the receipts you can get.
posted by mireille at 7:12 PM on May 17, 2013
My husband, who is a CPA, suggests you might want to find another accountant, specifically one who has experience with pass through entities. He says that at his firm they advise all clients to err on the side of caution and save every receipt and bank rec. The CPA is only responsible for compiling the information you give them, so if something happens it is you who will be responsible for interest and penalties. But of course he isn't your cpa and this isn't professional advice.
He also wanted to remind you that for all the receipts (that you ABSOLUTELY SHOULD SAVE OMG WHY WOULDN'T YOU) many of them fade now, so you will want to scan, photocopy or just take a photo with your phone.
posted by Nickel Pickle at 7:37 PM on May 17, 2013
He also wanted to remind you that for all the receipts (that you ABSOLUTELY SHOULD SAVE OMG WHY WOULDN'T YOU) many of them fade now, so you will want to scan, photocopy or just take a photo with your phone.
posted by Nickel Pickle at 7:37 PM on May 17, 2013
Separate cards is an absolute. It's like checking accounts: you do not mix personal with business accounts, for just this reason.
You could keep an ongoing spreadsheet, showing for each transaction the purchase price and the sales tax. That takes a little planning, thought, and perseverance at first, until it is old hat. But then at the end of the year, all you need is a formula and you have both your total sales tax payments for the year and the details that support them. Keep the envelope of receipts just in case you do need to plop it on the desk at some point.
If your husband can't do that, he should be someone's employee.
posted by megatherium at 4:22 AM on May 18, 2013 [1 favorite]
You could keep an ongoing spreadsheet, showing for each transaction the purchase price and the sales tax. That takes a little planning, thought, and perseverance at first, until it is old hat. But then at the end of the year, all you need is a formula and you have both your total sales tax payments for the year and the details that support them. Keep the envelope of receipts just in case you do need to plop it on the desk at some point.
If your husband can't do that, he should be someone's employee.
posted by megatherium at 4:22 AM on May 18, 2013 [1 favorite]
Save every damn receipt - I have been through an audit - it ended-up being in my favour, as I missed some receipts when originally submitting my taxes...
... Get a new CPA, this one is not worth a dime ...
posted by jkaczor at 7:19 AM on May 18, 2013
... Get a new CPA, this one is not worth a dime ...
posted by jkaczor at 7:19 AM on May 18, 2013
For my corporate travel and expenses (this is a company I work for and do not own - large public corp.) we use a corporate issued credit card and that is the record of any expenses.
As I said previously, there are no right or wrong answers. It depends on context. You have to think about it from the point of view of an auditor.
Is the auditor worried that employees at mega-corp are buying groceries with their credit cards? Not really. Presumably the company managers are more worried about that sort of thing so police their employees.
But we are talking about so-called pass-through businesses (proprietorships and S-corps) in which business income is personal income and business expenses are deducted from personal income. It is very common for people to try to deduct groceries, clothing, furniture, cars, and vacations so auditors are going to apply more scrutiny. They have a limited amount of time and they are rewarded for finding the most bucks. They aren't going to find it looking for grocery purchases at mega-corp. They are more likely to find it looking for grocery purchases at the pass-through business.
For my personal taxes I don't keep many physical receipts and rely upon my Amex records to support deductions.
As far as personal taxes for a regular employee, there simply aren't many expenses that you can deduct so you only need receipts for deductible items -- medical bills, mortgage interest, property taxes, charity donations, and a few others. Nothing else matters so don't keep receipts.
posted by JackFlash at 10:39 AM on May 18, 2013
As I said previously, there are no right or wrong answers. It depends on context. You have to think about it from the point of view of an auditor.
Is the auditor worried that employees at mega-corp are buying groceries with their credit cards? Not really. Presumably the company managers are more worried about that sort of thing so police their employees.
But we are talking about so-called pass-through businesses (proprietorships and S-corps) in which business income is personal income and business expenses are deducted from personal income. It is very common for people to try to deduct groceries, clothing, furniture, cars, and vacations so auditors are going to apply more scrutiny. They have a limited amount of time and they are rewarded for finding the most bucks. They aren't going to find it looking for grocery purchases at mega-corp. They are more likely to find it looking for grocery purchases at the pass-through business.
For my personal taxes I don't keep many physical receipts and rely upon my Amex records to support deductions.
As far as personal taxes for a regular employee, there simply aren't many expenses that you can deduct so you only need receipts for deductible items -- medical bills, mortgage interest, property taxes, charity donations, and a few others. Nothing else matters so don't keep receipts.
posted by JackFlash at 10:39 AM on May 18, 2013
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Keeping extra information can't hurt you. However, it does make a lot of sense to use separate cards for business and personal. You can hand the auditor the statements, and then dig through the receipts only if they require them.
posted by gjc at 6:26 PM on May 17, 2013