Documents Needed to Verify Your Tax Deductions

If the IRS questions one of your tax write-offs, they’ll ask for some sort of documented proof of the deduction—receipts, bills, invoices, canceled checks and other documents. In fact, now is the time—before an actual examination—to ensure that your receipts add up.

Following is a list of 25 different kinds of deductions and the type of written proof you can show to document that write-off:
Exemptions (children)

  • Birth certificates
  • If divorced, submit divorce decree and Form 8332 indicating which parent will claim the exemption.
  • Canceled checks and receipts for amounts you spent on support of children.
  • Records of what others spent on the children, including from Social Security, welfare and other outside sources.
  • A Social Security number must be obtained for each child and reported on your return.

Exemptions (other than your children)

  • A dollar listing of the cost of the dependent’s support.
  • The amount of income received by or for the dependent.
  • A compilation of what each household member spent toward household expenses.
  • Name, address and Social Security number of persons with whom dependent lived during the tax year.
  • Copies of canceled checks and receipts to verify amounts spent for the dependent.
  • A Social Security number must be reported for each person claimed as an exemption on your return.

Medical expenses

  • Canceled checks and receipts for all medical and dental expenses.
  • Itemized receipts for drugs and medicines.

Medical travel

  • A physician’s statement showing the days on which you had an appointment.
  • Receipts for parking and tolls.
  • Taxicab receipts or a log showing number of miles you traveled for medical reasons.

Medical insurance premiums

  • Your insurance policy, along with canceled checks/receipts indicating premium payments.

Taxes

  • Canceled checks or receipts for taxes you paid. In the case of state and city taxes, furnish copies of prior year’s state or city tax return, along with canceled checks showing payment.

Interest

  • Canceled checks, along with receipts or statements from creditors indicating amounts of interest you paid. For mortgage interest, year-end statements should be presented.

Investment expenses

  • Canceled checks and receipts.

Sales of stocks/securities

  • Copies of brokerage firm’s confirmation slips that show buy and sell prices.

Contributions

  • Canceled checks, receipts or a statement from a religious organization or other non-profit group. (A canceled check is no longer sufficient for contributions of $250 or more.)
  • For donation of property, show a receipt from donee, a list of items contributed and fair market value of items at time of contribution. For large contributions, a professional appraisal is required.

Casualty losses

  • Damage reports from police or fire department.
  • Receipts or canceled checks indicating the basis of the involved property and the date you acquired it.
  • Documents showing fair market value of property before and after the casualty.
  • Records of appraisals or damage estimates.
  • Repair bills or estimates of repairs.
  • Insurance reports on reimbursement amounts.
  • Photographs, if available, indicating the extent of loss or damage.

Child care

  • Canceled checks or receipts, along with the name, address and Social Security number of the caregiver.

Alimony

  • Canceled checks showing payment.
  • A copy of the divorce or separate-maintenance agreement.
  • Current address of former spouse, together with his or her Social Security number.

Reimbursed education expenses

  • Canceled checks and receipts for tuition and for other pertinent expenses, such as books, meals, lodging.
  • A report from your employer on reimbursement it provided, along with a statement of the purpose of your study and that it was required for your job.
  • School transcript showing what courses were taken and when.

Bad debts

  • Name and address of debtor.
  • Promissory notes or other written documentation of legal debt. Proof of the improbability of collecting the funds.

Travel & entertainment expenses

  • For business travel: Canceled checks and receipts for gas, oil, auto insurance and lease payments; auto repair bills; invoice for business auto; log or diary showing business miles driven.
  • For entertainment: (1) Receipts and canceled checks indicating date, amount, place, person entertained and the business purpose for the activity. (2) A statement from your employer that shows the amount of reimbursement and says that you were required to incur such expenses.

Home office expenses

  • •    Receipts or canceled checks for mortgage interest, taxes, rent, utilities, office repairs, furniture and equipment.
  • •    A statement from your employer that it requires you to work out of your home for its convenience, and that it doesn’t provide you with an office.
  • •    Photos of your office area. Keep in mind that no personal activity can take place in space set aside for business unless it is used for inventory storage or is a day care business.
  • Rental income & expenses
  • For proof of income: (1) Receipts for rents, deposits and fees. (2) A list of your tenants, their monthly rents and the months of occupancy.
  • For expenses: (1) Canceled checks, invoices for repairs and costs associated with rental units, such as gardening.
  • (2) Year-end mortgage statement, plus canceled checks for payment of interest and taxes. (3) To prove depreciation, documents showing original cost, tax bill for year property was purchased, plus rental record for the year prior to the tax year the auditor is examining.

Business income & expenses

  • These are Schedule C items.
  • For proof of income: All available records, such as bank statements, cash-receipts journals, invoices and Forms 1099. Also included are records of loans and receipts indicating repayment, and statements for sales of real estate or property.
  • For expenses: Ledgers and journals, invoices, payroll tax returns, and canceled checks and receipts.

IRA rollovers

  • Trustee forms and account statements showing that withdrawn funds or securities were rolled over tax-free within 60 days of withdrawal.

Penalty-free IRA withdrawals

  • Receipts or canceled checks showing qualified expenditures for higher education expenses, certain home purchase costs, etc.

Dependent child tax credit

  • Same as for dependent exemption.

Education tax credits

  • Receipts or canceled checks showing qualified tuition and fee expenditures. For Hope Scholarship credit, report cards showing student carried at least half a full-time load for at least one academic term during the year.

College loan interest

  • Receipts or canceled checks showing payment of qualified tuition and/or room and board expenses within a reasonable time before or after the loan is taken out.

Depreciation of “listed property”

  • For autos; computers and peripheral equipment; video, audio, photographic equipment; and cellular phones: usage logs or other documentation showing business and personal use.

How to Reconstruct Your Records—Legally
In the less-than-perfect world we live in, chances are that you may not be able to produce receipts, bills or other written documentation for all the items on your return that are at issue (especially when the audit arises several years after the end of the tax year in question). That’s when you must turn to reconstructing your records or amassing the best proof you have for the IRS.

It’s perfectly legal to reconstruct your records in any way to provide adequate evidence that what you claimed on your return was, in fact, correct. The law does not require perfect recordkeeping habits—it’s just simpler that way.
For interest payments, medical expenses and so forth, one way to reconstruct records is to secure a statement or affidavit from the parties involved. Or, you may be able to prove up expenses by reviewing your credit card statements even though the receipts are missing. In the case of contributions of more than $250 to charitable organizations, however, you are required by law to have obtained a receipt by the time you filed the return claiming the deduction. Contrary to what some think, this rule does not throw you out if you lost the receipt. You have to prove only that you had it at the time. A statement from the charity or a photocopy of the receipt from its records is sufficient.

If you received or paid interest, get a statement from the second party. With a contribution of clothing to a charity, you might prove the value by itemizing the articles donated, their dates of purchase and the prices you paid. Try to show the IRS examiner a pattern of clothing purchases you have for keeping up with style and the stores where you buy clothing to indicate the level of prices you normally pay.

When statements from involved parties are lacking, try to amass facts that will prove a deduction. You may have a date book or diary that indicates you attended a seminar or event in which travel expenses were incurred. In the case of a casualty loss, for example, you might secure a copy of a police report to prove to the IRS examiner that the loss did, in fact, take place.

The average auditor probably will give you the benefit of the doubt if your secondary proof is orderly and represents honest intentions.