Don’t throw away those credit card receipts

QUESTION:

How long must I keep credit card receipts?

ANSWER:

I recently discussed this subject with the director of the IRS Self-Employed Division. I had been involved in an IRS field audit with a restaurant operator who had failed to keep all credit card receipts related to net sales reported on his corporate tax return. The problem was, the restaurateur had contributed excess monies to the restaurant’s checking account, so the cash deposits to the bank were greater than the net sales of the restaurant. Since the restaurateur wasn’t able to fully detail his cash contributions, the IRS auditor proposed to treat all of the bank deposits (credit card deposits plus cash deposits) as income for the restaurant and tax them accordingly!

Saving the credit card receipts would have helped my client clear up this problem. With that in mind, I pointed out to the IRS director that her agency promotes and encourages paperless documentation that is stored electronically. But restaurant owners are still required to keep paper receipts for the field auditors! I proposed the following: I will have my restaurant owner clients keep all daily credit card receipts in paper form for one year to support all other electronic documentation. For year two, I will keep paper receipts for four random months, and I will keep one month’s worth of paper receipts for year three.

This system of paper retention to support credit card receipts will meet the record-keeping requirements set forth by the IRS in Section 274(d). I encourage all of my PMQ readers to ask their tax preparers about this method.

QUESTION:

How do I get answers to some of my tax questions without paying accounting fees?

ANSWER:

The IRS website, taxmap.ntis.gov/taxmap, allows taxpayers to drill down into any tax-related topic. For example, the home page has a section on the Affordable Care Act, which affects many taxpayers in one way or another. Whether you are a pizzeria owner or employee, you need to make sure you understand the law’s requirements and comply with the rules. Fortunately, you don’t have to pay your accountant for basic information about it—you can start with this website.

Another example: I wanted to know if the IRS had a form that supports the documentation of a restaurant employee’s daily record of tips received; I now advise restaurateurs to keep such forms on file to support tip reporting, which is becoming a topic of interest to IRS investigators these days. I simply typed in “employee record tips” and found exactly what I was looking for. The search function works like a Google search and can save you money in accountant fees!