Critical Documents for Tax Audits
August 26, 2010 - Every business adjusts their policies to maximize efficiency, and so does the IRS. The results of every audit add to the collection of statistics and information used to formulate new techniques and adjust areas of focus. Travelers can be subject of audits through numerous avenues and since we work in a world of where multiple state filings, tax free allowances and large amounts of business expenses are common, the chances of an audit are significantly higher than other taxpayers. The thought of an audit can be scary and since bad news travels fast, stories about travelers paying thousands of dollars abound. The good news is that with proper documentation, many audits do not result in significant changes.
So what should you really keep? The most common answer is “Everything!” But realistically, how long do you want to lug around mounds of paper or fill up your hard drive with endless images of receipts? Money isn’t everything and the travel lifestyle often requires us to triage the amount of stuff we carry or keep in storage. Instead of keeping every receipt that you have, perhaps it is best to focus on the more important items. The following is a list of items that are the most important in an audit. If you want to keep more, that is fine. Whatever you do, keep these for at least 7 years from the date you file the return.
Do Keep
1) Copies of contracts, extensions and addendums.
In an audit, the IRS wants to see what you are reimbursed for and they are not going to take your word for it. They want to see proof. No contract = no deduction.
2) Receipts of all lodging and transportation expenses.
Since truckers often sleep in their cabs, the chances that you slept in a rest area are just as high. No hotel receipt = no deduction = no per diem.
3) Mileage log.
Buy a booklet at a local office supply store and keep it in your car. No log = may need MapQuest.
Don’t keep
1) Meal and grocery receipts
Use the per diem tables in IRS publication 1542 for the city that you are in.
2) Gas, oil, insurance and any other maintenance receipt for your car.
This is what your log is for. The average traveler does not benefit from using actual expenses.
3) Storage expenses
Storage expenses are not deductible nor do they apply to the expenses for your tax home. Storage expenses are only proof that you have too much stuff.
That’s the important stuff. Keep all of it in a safe place somewhere in the nation where you will remember it.
About the author:
Joseph Smith is an IRS Enrolled Agent and former travel respiratory therapist whose firm (TravelTax LLC) provides tax preparation and audit representation for the mobile professional. He is a regular contributor to HealthcareTraveler, Locum Life and a speaker at the annual Travel Medical Professionals Convention. For more travel nursing tax advice, visit TravelTax.com.
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