Can You Use Credit Card Statements as Receipts for Taxes?

When filing your return, you aren’t required to submit any receipts or paperwork to prove your tax deductions. You'll have to prove expenses reported on your return if you receive an Internal Revenue Service tax audit notice. You may be wondering, "Can you use credit card statements as receipts for taxes?" It is always better to be able to show all your bookkeeping details to the IRS auditor. They require any form of acceptable proof such as receipts, bank statements, credit card statements, cancelled checks, bills or invoices from suppliers and service providers.

Without the appropriate documentation, the IRS won’t allow your deductions.  Remember, it's better to be safe than sorry. Scan and store all documentations to keep digital copies for your bookkeeping records.

Why Should You Keep Tax Records?  

The IRS requires that have a detailed expense record, which makes proper bookkeeping very important to your big or small business.  

Good records will help you do the following:

  • Monitor the progress of your business
  • Prepare your financial statements
  • Know how much tax you have to pay in 1099 income
  • Identify sources of your taxable income
  • Keep track of your tax deductible expenses and write offs
  • Keep track of your basis in property
  • Tax Preparation
  • Support items reported on your tax returns

As a business owner you must always keep your records, including credit card statements available in case of an IRS audit.  During the IRS examination of your tax returns, a detailed set of records will expedite the inspection process and protect you from penalties. Don't get caught in an IRS audit without your receipts.

What Kind of Records Should You Keep?

So, now you know it is important to keep documents because they support your record keeping and are valuable to have as 1099 tax deductions. your tax return.  What types of records should you keep then?

Gross Receipts

Gross receipts are the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross receipts.  

Documents for gross receipts include the following:

  • Cash register tapes
  • Deposit information (cash and credit sales)
  • Receipt books
  • Invoices
  • 1099 Forms

Purchases

Purchases are the items you buy and resell to customers. If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Your supporting documents should identify the payee, the amount paid, proof of payment, the date incurred, and include a description of the item to show how much the expense cost. Even credit card interest is tax deductible. Documents for purchases include the following:

  • Canceled checks or other documents reflecting proof of payment/electronic funds transferred
  • Cash register tape receipts
  • Credit card receipts and statements
  • Invoices

Expenses

Expenses are the costs you incur (other than purchases) to keep your business alive. Your supporting documents should identify the payee, the amount paid, proof of payment, the date incurred, and include a description of the item purchased or service received. These expenses are tax deductions from your 1099 income.

Documents for expenses include the following:

  • Canceled checks or other documents reflecting proof of payment/electronic funds transferred
  • Cash register tape receipts
  • Account statements
  • Debit or credit card receipts and statements
  • Invoices

Travel, Transportation, Entertainment, and Gift Expenses

If you deduct entertainment, gift, transportation or travel expenses, you must be able to prove certain elements of the expenses.  Below is a summary of records you need to prove each expense.  

Assets

Assets are the property, such as machinery, furniture or office supplies, that you own and use in your business. You must keep records to verify certain information about your business assets. You need records to compute the annual depreciation and the gain or loss when you sell the assets.

Documents for assets should show the following information:

  • When and how you gained the assets
  • Purchase price
  • Cost of any improvements
  • Section 179 deduction taken
  • Deductions taken for depreciation
  • Deductions taken for casualty losses, such as losses resulting from fires or storms
  • How you used the asset
  • When and how you disposed of the asset
  • Selling price
  • Expenses of sale

The following documents may show this information.

  • Purchase and sales invoices
  • Real estate closing statements
  • Canceled checks or other documents that identify payee, amount, and proof of payment/electronic funds transferred

How Long Should You Keep Records?

The length of time tax payers should keep a document for federal tax purposes depends on the action, expense, or event. Tax laws state that you must keep your records that support an item of taxable income, deduction or credit shown on your return until the period of limitations runs out.

The period of limitations is the time in which you can amend your tax return to claim a credit or reimbursement. If you do not qualify for a refund, then the IRS can assess additional tax. The information below reflects the periods of limitations that apply to income tax returns. Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.

Period of Limitations that apply to income tax returns:

  • Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.
  • Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
  • Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
  • Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
  • Keep records indefinitely if you do not file a return.
  • Keep records indefinitely if you file a fraudulent return.
  • Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

Considerations

As long as the information is visible and legible, your scanned receipts and statements are acceptable as a proof records for the IRS purposes. Once you back up, save, or make digital copies of your records, you must keep them for another three years after tax time. Having a detailed record of your income and expenses will not only protect you against audits but also make handling your independent contractor taxes much easier. The burden of proof is on you. After the statute of limitations blocks the IRS from inspecting you, you don't have to keep your records in most cases.

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Soo Lee

Soo Lee

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Soo has extensive experience in publicly traded companies and public accounting firms offering tax, accounting, payroll and advisory services to clients in diversified industries including manufacturing, wholesale/retail businesses, construction, real estate development and investment, banking, finance and professional/legal consulting service. Soo earned her B.B.A. in Accounting from Ohio State University and Master of Taxation from Georgia State University. Soo is a Certified Public Accountant in Georgia and a member of the American Institute of Certified Public Accountants.

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Note: at Keeper Tax, we're on a mission to help freelancers overcome the complexity of their taxes. That sometimes leads us to generalize tax advice. Please reach out via email if you have questions.