The thought of the Internal Revenue Service summoning your records is enough to strike fear into the hearts of many law-abiding Americans. However, if you understand what the IRS expects of your receipts, and what information it wants to see, you’ll be well prepared and can breathe easily if your records undergo review.
Many acceptable receipts should be printed by a third party, whether by hand or machine. Handwritten and printed sales slips or receipts from stores, medical facilities, or anywhere else you conduct financial transactions should be kept. If you run a business and receive invoices, invoices should also be kept, along with notes containing specific details about when and how they were paid. If you donate to any charity, keep written communications that the charity provides you as proof of your donation. If you are seeking reimbursement for health care expenses, such as prescriptions, you must keep a copy of your prescription along with all receipts you receive when you fill your prescription.
Acceptable receipts should clearly indicate the name of the facility, the date, what item or service is being provided, and all applicable costs for the item and subsequent taxes. They should also indicate how you have paid for the item -- check, money order, debit or credit card, or cash. In the case of electronic payments, bank statements or printouts from your financial institution may serve as receipts, and will by nature contain all necessary information. If you make payments via cash, make sure your receipt states the reason for your cash payment.
You may keep records of the amounts you spend in a checkbook or other financial register for your own personal records as well, which may make you think you no longer need to keep receipts. However, for anything you claim as any sort of deduction, or for which you require reimbursement, you should keep the receipts on hand and easily accessible. Personal records can be useful as a means of verification for the IRS, but third-party receipts provide an extra layer of reliability to back your claims.
Statutes of Limitations
Any statements you receive from brokerage accounts or investments you’ve made, home mortgage statements, cancelled checks and official tax forms such as W-2s and 1099s are all items you must keep for the IRS. How long you must hold on to your receipts and other records depends on the statute of limitations for your situation. As of 2011, there is no limit to the amount of time the IRS has to contact you about a fraudulent tax return, or a tax return you haven’t filed. If you fail to report income that equals more than 25 percent of the gross income shown on a return you’ve filed, the statute of limitations is six years. Otherwise, if you owe additional taxes, the statute of limitations is only three years. If you file claims for credits or refunds after you’ve paid your taxes, you have up to three years from the date you filed the tax return, or two years after you actually paid the tax -- whichever is later. If you file a claim for a worthless securities loss, the statute of limitations is seven years.