Bookkeeper / Real Estate Investor: Business Expenses

[Max Emory]

Unfortunately, the burden of proving and qualifying business transactions for the IRS is on us as the investors and small business owners.

Most people think if the IRS can’t prove something wasn’t a business expense in an audit then they’re good to claim it but that’s not the case. The burden of proof is always on us.

Receipts, activity logs, pictures, paperwork, etc for all transactions is key!

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Bookkeeping Professional | Real Estate Investor | USMC Veteran

[Michael Plaks]

I must disagree with the meme notion of "If you can't prove it - you can't claim it."

You are legally entitled to claim business expenses that you actually incurred/paid for and that meet the legal definition of "ordinary and necessary." Section 162 says:

"There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business"

The IRS has the right to audit your tax return and request that you defend it. At that point, you must either prove your expense with acceptable documentation or otherwise convince the IRS (and, if you fail to do so, the courts) that the expenses were allowable.

Obviously, the better your documentation and bookkeeping, the safer you are. But not saving a receipt or not keeping a mileage log does NOT disqualify you from claiming expenses. It makes it riskier, but not illegal. 

The illegal thing when it comes to expenses is making them up, aka lying. Sloppy operation and lack of bookkeeping is bad business but is not illegal.