When dealing with the Internal Revenue Service for tax deductions or audits, it would help if you have specific receipts for items. Your credit card statement includes relevant information about these purchases, which are acceptable by the IRS. As long as your credit card statements contain specific information, the IRS accepts them as proof of payments for deductible medical expenses, charitable contributions, home repair deductions, etc.
You don’t need any paperwork to file your return. However, you will need to prove your expenses if you receive an IRS tax audit notice. While showing your bookkeeping details to the auditor, you may give them any form of proof, including your credit card statements, receipts, cancelled cheques, bank statements, and suppliers’ invoices or bills.
Information Required
If you want to use your credit card statement as proof of your expense, ensure that it includes information about the charged amount, payee’s name, and transaction date. These are standard details in almost all card statements, so you don’t need to worry. The statement that you provide should be legible and officially prepared by your financial institution. If you donate a hefty amount to a charity, you may need to procure a donation receipt from the charitable organization in letter form. If you cannot provide appropriate documentation to prove your expenses, the IRS has the right to reject your deductions.
Is Your Credit Card Statement Enough?
Generally, yes. Your card statement is enough to prove your tax write-offs. However, if the IRF feels that the information provided by your account is not enough, they may ask you to furnish another proof along with the statement. IRS may ask for two things while conducting your audit: a payment record and a payment receipt. Your card statement can work as your payment record, but if the IRS wants to see the details of a specific expense, you will need to provide them with the receipt. Without a receipt, you may not prove a tax-deductible purchase.
While some credit card companies provide detailed information in their statements, you may not rely on them entirely. Therefore, keeping some documents to support your book entries is crucial.
Significance of Keeping Tax Records
Since IRS would require a detailed record of your expenses, it is crucial to maintain proper bookkeeping. Keeping tax records will help you accomplish the following:
- Monitor your business progress
- Prepare financial statements
- Know the tax amount to be paid
- Identify sources of taxable income
- Keep track of tax-deductible expenses
- Prepare taxes
If you are a business owner, it’s crucial to maintain your records, including credit card statements. Detailed records will expedite your inspection process and help you prevent any penalties. You can be in real trouble if you show up in the IRS audit without your tax records and receipts.
Types of Records to Keep
Since records are crucial to support your tax deductions, let’s find out what types of records you must keep:
Gross Income:
Although your credit card statement may prove receipts for the products or services you sold, it is crucial to keep your supporting documents ready, including your invoices, receipt books, and cash register tapes.
Inventory, Expenses, and Cost of Sold Goods:
If you buy and sell any products, you must keep an inventory and the cost of sold goods for that financial year. You may document all these purchases using your credit card statements, cleared checks, expense reports, and bills. Other expenses you make for your business can also be supported by your credit card statements, bills, expense reports, and cash receipts. Did you know that even your credit card interest is tax-deductible?
Assets:
Keep records of any asset you purchase, including equipment, fixtures, furniture, vehicle, or building. The record must include crucial information about the assets, including their acquisition date, original price, and date you started using the asset.As long as the information contained in your credit card statements is legible, it is accepted as proof for your taxes. However, having a detailed record of your income and expenses will protect you from tax audits and make tax handling easier for independent contractors. It includes details of all your account activities, including your payment details, credit card interest rate, charges, transactions, etc. You may get your credit card statement through mail or check it online through your net banking account and use it as a receipt for your taxes.
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