You put all your receipts in a box during the year, but when you took them out at tax time, they were all faded. What do you do?
Table of Contents
This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.
Do you need your receipts to claim a deduction?
The first thing you should understand is that you don’t need to attach your receipts to your tax return. You just enter your deductions.
You don’t even need your receipts in an audit. You just need to be able to prove your deductions. How do you prove your deductions without your receipts? That’s the Catch-22.
What if you don’t know how much to deduct?
Some people don’t record their expenses during the year and then add up all of their receipts at tax time. Hopefully, you’re starting to see why this is a bad idea.
The best-case scenario is if you ran all of your business expenses through business checking accounts or credit cards and didn’t mix in any personal expenses. Then you could just look back through your statements for the year.
Next, you might look around your office for things you bought during the year. This might be your new chair or the subscription-based software package on your computer.
In limited situations, you may be able to estimate your deductions. Of course, you’re going to need a really good explanation if you get audited. This is not recommended unless you work with a tax accountant.
How do you prove your deductions if you get audited?
If you get audited, there are two things you need to prove — the amount and that it was for a business purpose.
- Receipts are good because they provide independent verification of the amount and usually show enough information that the item was business-related.
- Bank statements can show the amount but may or may not show the purpose. For example, a Walmart purchase could have been personal groceries.
- You can also provide your bookkeeping records, but these can be made up, so the IRS may question them more than a receipt or bank statement.
- If you estimated, you’re going to need to provide a basis for the estimate. For example, maybe you lost your gas receipts but know your mileage, miles per gallong, and can look up average gas prices. Again, the IRS really doesn’t like estimates except in rare situations, and you may have your deductions disallowed.
What happens if you can’t prove your deductions?
If you can’t prove your deductions, the IRS will disallow them. That means they’ll take them off of your tax return and recalculate it without those deductions. You’ll owe interest and penalties based on the additional tax the IRS says you should have paid.
How do you stop receipts from fading?
Most cash register receipts will fade away after a year or a little longer no matter what. It’s due to the type of ink and paper used for most receipts.
How can you recover a faded receipt?
For a lightly faded receipt, you can sometimes scan it or take a picture. Once the image is on your computer, you might be able to adjust the brightness settings to be able to see the text.
Another way to be able to read a receipt again is by using heat to reactivate the ink. Use these options last in case you damage a receipt.
- The easiest way and least likely to cause damage is with a hair dryer. Hold the receipt an arm’s length away and slowly heat it up. Try the lowest setting first and increase from there if needed.
- Next, you can try applying heat with a clothes iron. Use a towel or something else in between to prevent your receipt from being burned by the iron.
- Finally, you can try restoring the faded receipt with a laminating machine. The risk here is that if you can’t read the receipt after you laminate it, you won’t be able to use other methods. Trying to peel the receipt out could cause permanent damage.
How should you save your receipts?
You should scan or take a picture of all of your receipts and store them on your computer. Keep a folder for each tax year. Many bookkeeping apps also allow you to attach receipt scans to your transactions.
It’s generally safe to shred your receipts once you’ve scanned them, but if you really want to be safe, you can keep them in a box as you’ve always done. Just remember to scan them as you go rather than procrastinating until the end of the year in case some of them fade fast.
Does the IRS accept scanned receipts?
The IRS does accept scanned receipts as proof of your deductions. Receipts can be printed out, electronic documents, or scanned copies.
In rare circumstances, they might question if a receipt is valid based on the way it looks. That’s why it’s good to have other supporting information that matches your receipts like copies of your credit card statements.