For my business utilities, internet, phone etc, I subscribe to paperless billing. However, many of these accounts only store up to 2 years of history.
If I am audited, how can I prove my expenses? Most of these bills are under $100/month. Is an auditor really going to deny such expense because the online account no longer has a record of it?
billing. However, many of these accounts only store up to 2 years of history.
$100/month. Is an auditor really going to deny such expense because the online account no longer has a record of it?
Many of these (all of the ones that I'm familiar with) present the statement in pdf format with a "save a copy" option. Takes little hard drive space, still paperless and you have a permanent record.
But don't you need a time machine to go back a year and save the bills that have already been discarded from the web site?
Some of the companies may have ways for you to get older statements, just not conveniently through the web site. And they may charge for them.
For what it's worth, it's easy to combine PDFs into a single file, so my
12 months of brokerage statements for 2012 are one 2MB file. Encrypted, backed up, and backed up away from home.
Even for the ones that don't, the on-line page with the invoice can easily be turned into a pdf using a number of different free programs that are available.
___ Stu
billing. However, many of these accounts only store up to 2 years of history.
$100/month. Is an auditor really going to deny such expense because the online account no longer has a record of it?
Yes. It is your responsibility to maintain the records relevant to your tax return, not the utility company.
Ira Smilovitz
return, not the utility company.
So every month I am supposed to log into a dozen websites to save "pdf" files. Then I have to backup these pdf's to other computers in case my hard drive crashes?! All this effort to prove an expense that is obviously not made up?
Folks, get real, nobody does this or should be expected to. Please explain why an auditor would deny my expense when I prove beyond any reasonable doubt that is legitimate?
How did you prove it "beyond any reasonable doubt" (probably the highest level of proof at law) if you had no documentation? Your uncorroborated verbal statement will count for very little.
But on the other hand, you might decide that the risk of being audited more than
2 years after the fact is minimal, and therefore you will just take your chances.MTW
The way you prove beyond a reasonable doubt is through the receipt itself. If you think to say this-or-that is a reasonable expense for someone in your business, that won't fly in general because for one person $100 is reasonable for software, and another $1000 is reasonable. Remember, you might be honest, but the IRS auditor does not know this.
Please see
No, only the ones that don't keep 3 years of statements.
How do you pay those bills? Don't you log in to those websites so you can know what you owe and pay it?
___ Stu
I use auto-pay. Some directly debit my bank account, some my credit cards... The problem is even my credit cards I do paperless statements.. So maybe I need to stop doing that!
The problem is even my credit cards I do paperless statements.. So maybe I need to stop doing that!
To each his own. I'm not seeing where accessing websites and saving and backing up electronic files is any more time consuming or labor intensive than opening snail mail, filing statements, and maintaining paper records. Either process should satisfy an auditor. Doing neither will certainly raise a red flag.
return, not the utility company.
How about once a year or so, since two years of records are available? When you do your taxes would be a good time, since that's when you need the records anyway.
The expense might not be, but the amount needs to be proven.
If you prove it sufficiently well, then it will be accepted. How do you plan to prove it without records? "It's obviously valid" isn't proof.
Seth
return, not the utility company.
Then I have to backup these pdf's to other computers in case my hard drive crashes?! All this effort to prove an expense that is obviously not made up?
an auditor would deny my expense when I prove beyond any reasonable doubt that is legitimate?
I think it only takes one audit where the lack of documentation for multiple items combined with a tough auditor who doesn't care for the taxpayer's attitude would be enough to put said taxpayer on the path of OCD record keeping. "nobody does this" - I worked with a woman who has phone/gas/electric bills going back 10 years and no business reason to do so. I imagine people who run a business make up a high number of people who actually save receipts and keep good records. "or should be expected to" - Because this is actually what they expect. "I prove beyond any reasonable doubt" - my bank statement shows all autopay companies' names. These statements might suffice to prove payment of those bills. Is that what you mean by 'prove'?
Between all the variations of brokerage accounts, IRA, Roth, custodian, etc. I have 12 accounts for my family and me. Mid January, I pull down all 144 pdfs. Since they show a dozen at time for each account, it's a process that's as fast as I can right-click. It probably took just under an hour, including my packing each set into one annual PDF.
Most regulars here are going to provide answers to help readers get through an audit, for this question, you got the attention of of some very knowledgeable people. Take their advice, if it were billable hours, you just saved yourself quite a bit of money.
I agree with paultry's comment. In general, the benefits of "going paperless" accrue mostly to the vendor or financial institution, not the payer (which is why they are always bugging you to go paperless, and sometimes even paying a small bribe to do so). For some, but not all, of my utility bills, I still receive paper statements and just scan them, which does save having to go to the web site, look up my unique password for that account, log in, and find the right link to download.
I don't bother keeping credit card statements at all (but I do reconcile the details in my accounting software). I don't think a credit card statement will help very much in an audit, because without the receipt, it only shows you paid a certain amount to a certain entity on a certain date, but not what it was for. For tax purposes, that last item of information is crucial.
Utility bills that you are deducting as business expenses, you definitely need to keep a copy of the statement.
Two pet peeves:
1) Paypal, which I use to receive payments for my hobby activity, and on rare occasion, business payments, only keeps 3 *months* of statements online, and they don't even offer to remind you via email (at least this is true of the basic level of service for small-timers, who typically won't receive 1099-K's).2) Almost any online account, the minute you close it, you immediately lose ALL access to historical transactions. Even if you close, say, a CD at a bank where you are still a customer, they immediately remove all history for that CD from your online access.
There is a browser add-in called Linky that makes it easy to download a bunch of links on a page all at once by just selecting them.
What takes time, in many cases, is identifying the unique name of each document and the folder where you want the downloads to go.
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