Updated: May 6, 2021
“Audit-proofing” your return means documenting deductions so that you can prove them if you’re audited. Today’s historically low audit rates make it pay to be aggressive. But you should file your return as if you expect to be audited. That way, if it happens, you can support your deductions and walk away from a winner.
The IRS generally doesn’t require records in specific forms (except for travel, entertainment, automobiles, and gifts- 1). To verify expenses, you need to show what you paid and proof that you paid it. Canceled checks (front and back) and credit card slips can verify payments. If you don’t have a check or card slip, you can verify the payment with “highly legible” bank statements- 2.
Checks must show the check number, amount, payee, and date it was posted to the account.
Electronic funds transfers must show the amount transferred, the payee’s name, and the date the transfer was posted to the account.
Credit cards must show the amount charged, the payee’s name, and the transaction date.
If you’re self-employed or you own a business, your real challenge is proving the business purpose of your expense. The solution is to keep detailed written records, which you can do right in your regular appointment book. This verifies deductions for car and truck expenses- 4, meals and entertainment- 5, home office- 6 and business property use- 7, and more. Keep records as close to daily as possible- 8.
1 IRS Pub. 552, page 2 (2008).
2 IRS Pub. 552, page 3 (2008).
3 IRS Pub. 552, page 3 (2008).
4 IRS Pub. 463, page 25 (2008).
5 Reg. §1.274-5(b)(3).
6 IRS Pub. 587, page 16 (2008).
7 IRC §274(d)(4); 280F.
8 Regs. §1.274-5T(c)(1).
9 IRS Pub. 552, page 6 (2008).