Tax deductions, receipts, and documents that you need to keep track of, and tips on how to manage all your records. Are you currently keeping up with all your receipts? Please respond with Yes or No, and if Yes, please tell us how you are doing so.

Every year, taxpayers must report their total income from all sources, which may include W2 wages, self-employed business income, and any other sources of income. Once all income is reported, tax deductions must also be submitted to determine the amount of income tax owed. Many people get into trouble because they are unsure of what qualifies as a tax deduction and how to provide evidence to support it.

Did you know that businesses can deduct almost anything? It is crucial to be able to support a tax deduction with evidence. To substantiate a tax deduction, you generally need three things: the amount of the expense, the time and place of the expense, and a business purpose for the expense, which is typically considered an ordinary and necessary expense. It is important to have a good story behind each receipt to substantiate the business purpose.

For cash payments under $75 for ordinary and necessary expenses, a receipt may not be required, unless it is for lodging. However, for cash payments over $75 for expenses such as a business lunch, a receipt must be kept. It is easier to substantiate expenses paid with a debit/credit card, as long as supporting documents meet certain criteria set by the IRS.

It is essential to keep detailed records of income and expenses for as long as needed to prove income and deductions on a tax return. Generally, records should be kept for 3 years from the date of filing the original tax return, or 2 years from the date of paying the tax, whichever is later. Records can be kept digitally, and in some cases, such as claiming a bad debt deduction, records may need to be kept for up to 7 years.

It is important to go paperless and use digital tools for record-keeping, such as storing bank statements and using digital receipt apps. Remember, any expense claimed as a deduction must be considered ordinary and necessary for your business.