As a business owner or self-employed individual, you’ve probably wondered about the
rules surrounding expense receipts. Do you really need to keep every single one? What
about that $5 coffee you bought while meeting a client? Let’s dive into the world of
business expense documentation and clear up some common misconceptions.
The $75 Rule: Fact or Fiction?
You may have heard that expenses under $75 don’t require a receipt. This is true to a point, but it’s important to clarify. The IRS doesn’t strictly require receipts for expenses under $75, but that doesn’t mean you’re free from documentation obligations. You must still maintain adequate records to substantiate the expense. This could include a credit card statement or other forms of documentation. However, for expenses over $75, you need documentary evidence, such as receipts or invoices, to properly substantiate your claim [IRS, Reg. § 1.274-5(c)(2)].
So, Can You Deduct Without a Receipt?
Yes, technically, but it’s risky. Even for small expenses, you should maintain some documentation to support the deduction. While the IRS allows for alternative documentation like credit card statements, having the actual receipt gives you stronger evidence in case of an audit.
What About Meals? Are They Special?
The business lunch—a classic for a reason, but it comes with its own set of rules. You can typically deduct 50% of business meals, but the IRS requires more than just the amount spent. You need to document:
- The amount
- The date and location
- The names of attendees and their business relationship to you
- The business purpose of the meal
This documentation is necessary to meet the IRS’s substantiation requirements for business meals and entertainment expenses [IRS, Reg. § 1.274-5T(b)(2)].
Receipts and Alternative Documentation
If you lose a receipt, all is not lost. You can still provide alternative documentation, such as:
- Credit card or bank statements
- Written records created at the time of the expense
- Calendar entries or notations
However, receipts provide more detailed information, which can help prove the nature of the expense more clearly [IRS, Reg. §1.274-5(c)(2)(iii)].
Best Practices for Business Expense Documentation
- Embrace technology: Use receipt-scanning apps like Hubdoc, or Ramp to make record-keeping a breeze.
- Be consistent: Develop a system for tracking all expenses, no matter how small.
- Note the business purpose: Always record why an expense was necessary for your business.
- Separate personal and business expenses: Use different credit cards or bank accounts to make tracking easier.
The Bottom Line
While it’s true that you might get away with deducting some expenses without receipts, the IRS strongly recommends maintaining thorough documentation. Good record-keeping not only helps in case of an audit but also gives you a clearer picture of your business finances.