What documents are necessary to prove deductions?

First, please read

Publication 552, Recordkeeping for Individuals

A report of bank transactions is usually not sufficient.

Yes, account statements are probably good enough. The account statement should show the amount due for investment management fee as well as the payment for investment fee. For example the Feb/2009 statement would show that you owe $400 investment management fee for February and also that you paid the $390 for January. Only the amounts paid during the year are deductible, so the Dec/2009 fee which is paid in Jan/2009 is not deductible.

Or if you want to save paper, ask the company to send you a summary of investment fees paid for the year. Just be sure they don't charge you for this service.

Bank records such as bill pay line items, canceled checks are OK as backup documentation.

BTW, are you in AMT? This is usually line 45 on page II of 1040. If yes, then the deduction for investment expenses is likely not allowed.

By bill do you mean the invoice that says stuff like home value 500k, tax $7200, with a breakdown of taxes and special taxes? Yes, this is probably good enough. Of course, you need proof that you actually paid the bill, but your bank statements only go back 5 months. You can attach a statement saying your bank charges you $5 for retrieving past checks, and there are no liens on the house right now, which means that the amount was paid. But then again, that just proves the amount was paid, not that it was paid in 2009. And what if you paid your 2008 taxes in 2009, or your 2010 taxes in 2009? For these you would need the check images as well as property tax bill. You can probably get this information from your property tax office. Just ask them for a list of amounts received in 2009.

Does it show the date, type of service, amount you owe, amount you paid? It may also show total amount, insurance negotiated amount.

Does it show the date, medicine, and amount you owe, amount you paid? It may also show total amount, insurance negotiated amount.

Did you have FSA? If yes, the amounts paid by FSA are not deductible.

Does the medical expense sheet above include the copay in the amount you paid? If yes, then you don't need the sheets. If no, then you need the sheets. Just attach a note saying that your bank charges you $5 for old checks and it's too expensive to get them. Then say that your account 1234-5678 with each health provider is in good standing and this proves that all bills have been paid.

As with real estate, checks along with invoices are more powerful because you can prove that you paid a 2008 expense in 2009

What do you mean by receipt? Does it say "Dear XXX, Thank you for your donation of $$$ on dd/mm/yyyy"? If yes, that is sufficient. Canceled checks are backup documentation.

Individuals

By billpay I mean an online service with my bank that pays my bill with a transfer from my checking account. It is pretty much a EFT.

The bank statement doesn't show the check's payees name, so I guess they are not adequate for checks. How about if I have a receipt or statement from the payee referencing the check number, which is on the statement?

I mean what I paid for the medical insurance. I buy my own.insurance. I did not save my invoice and the company I buy my insurance from cannot reproduce them. However they did give me a statement showing I buy insurance from them, and list of payments.

Yes, a letter like that. Then I can skip the check? $5 is alot to prove a $50 contribution.

The EFT statement is usually not sufficient because it doesn't say what the service is for. The publication does say "You also need to keep documents, such as receipts and sales slips, that can help prove a deduction". However, the IRS is often reasonable and will accept it. If they request the real invoices, receipts, etc then dig it up.

This sounds fine to me.

Perfect.

Yes, you can skip the check.

The IRS is likely asking you to back up your deductions because they are too high. I've never had to deal with this personally. I do have charitable deductions but they are small. I don't hear people with property tax deductions being bothered either as it's pretty standard. The IRS might be after your investment management expenses which you said is the highest deduction, and it's rare to see this deduction as only the amount above 2% of your AGI is allowed. So may provide the full details for this.

At ETrade Bank, they have records going back more than one year. So maybe it's time to change banks :). If enough people change or threaten to change, the bank will increase the time they keep records. 5 months is just too short, but I think some big banks are like this.

"Puffin" wrote

It might come out of your account that way, but I get paid by some clients in that manner, and I receive a check in the mail. I suspect that unless you have provided the necessary routing and account information for your creditors, they are getting checks too. And even if there was some electronic funds deposited, there would have to be sufficient information for the creditor to associate it with your account.

Oh yeah, it's out of your account days before payment is received by the creditor.

I have a different opinion. I believe that while the letter from the charity is very good, and if over $250 is required, along with a statement of Return Value, the check copy might be requested by the IRS, and I have seen that happen even when there's a receipt.

Actually you're right because the charity could be lying. Maybe someone sets up a charity and write letters for amounts that were never received. Having checks makes everything crystal clear.

"Beena Agarwal" wrote

It ain't cheap to set up a charity and get the 501(c)(3) letter from the IRS. I don't see anyone doing that for a few bucks in writeoff.

There is no limit to fraud. You can pay someone by check and have him return the money; using the check as proof of payment. You can type up fake invoices. There is no limit to what can be done, especially with computer. Only solution is to simplify the tax code; make less places to cheat. Yeah, right.

Since some banks don't give you your check back anymore, is there any value in photocopying the check before you mail it?

Is there any value in a contemperaneous log of charity spending through the year? Or evidence of mailing receipts?

Steve

If the routine is not return checks and its so expensive to get them I'd wait until they asked specifically and weren't satisfied w/ the 501(c)3 acknowledgment. If it were a well-known or established local it would seem likely they could be trusted to not do something that would jeopardize there status, too and the IRS would recognize that. Then again, who ever said there was any logic or common sense involved???

$0.02, etc., ...

I have been working on this 10 days so far and have maybe 30 hours of work and 200 documents. I expect I have another 20 hours and another

All that is at stake is a $369 refund. My accountant says I can't just concede it; that is asking for big trouble. I have to comply. So, is this all right, or am I somehow horribly misdirected?

Snipped

Sucks to get audited!

Your accountant is most incorrect about conceding. You can concede an issue without admitting any wrong doing. In fact, if I were your accountant I would have had this discussion with you at the beginning - how much time, effort and money are you interested in spending in order to get $369?

I once recommended to a client that he simply pay the IRS the $1,200 they were asking for, explaining to him that while the deduction was clearly legitimate it was going to cost him MORE to defend it than it was worth. He insisted on the fight and the case drug out for well over a year - around 16 or 17 months as I recall (it was almost 10 years ago). In the end I won - I knew I would - but it cost the client over $5K in fees! To defend $1,200! He had the money and I was happy to take it.

Now, if your total issue is $369 and you've already spent 30 hours of your time and accumulated over 200 documents and you're still NOT DONE - YOU ARE NUTS!

Your accountant should focus the auditor on the BIG ticket items, though I can't imagine what they could be if the total at risk is just $369.

In addition to your brokerage statements, get a letter from your broker (on letterhead) confirming the amount you paid in management fees. That should suffice.

As should a detailed list of what you paid from the pharmacy.

Confirmation from the county treasurer that your real estate taxes for the year in question have been paid should be sufficient.

If the auditor is being picayune about things, agree to disagree, ask for an immediate assessment and take the case to appeals. Trust me, appeals doesn't want to waste their time on $369 any more than you do - this case should have taken 2 half days to resolve at most (with all the usual caveats in place of course).

Good luck, Gene E. Utterback, EA, RFC, ABA

I don't have an auditor; I just have a letter from NYS saying that if I don't provide comprehensive documentation on all my deductions they will refigure my return omitting all unproven deductions. I should get a $369 refund. If all my deductions were disallowed I would owe $2,000 in tax. (it would not affect my Federal return!)

My accountant says that anything I do not document properly will be disallowed and I can count on that. You apparently don't agree with him... What do you think my response should be?

Anyhow, my wife alone has 45 medical copays of $20. It takes a lot of documents and time to prove 45 copays. And my sons and I had another

1. Then there are 11 dentist bills, 15 charitable contributions; well, you get the idea.

If they all have to be proven, then my figure for time and documents is proper. If only the big ones need to be proven then it might be 5% of that. He expected if I proved the big ones (enough to avoid paying the $2,000 in tax) but let them keep the refund because it wasn't worth the effort for $369, than I could count on the same thing for 2007 and

It is an enormous waste of time for me, but state has the option of just ignoring my submission rather than wasting time on processing it. All they have invested is a letter; then can concentrate on people who don't reply at all. It is maddening.

Not so fast here - if NYS makes adjustments to your state return you are obligated to file an amended Federal return to account for those same adjustments at the Federal level. Just like if you were audited by the IRS you'd have to file an amended return with the state.

HOLD ON HERE - if that is the impression I sent, please accept my apologies. Perhaps I didn't read your post closely enough. I THOUGHT you were jumping through all these hoops ONLY for a $369 issue. If the difference is closer to $2,500 then it may be worth the work.

You could get the physician to give you a letter detailing the receipt of these co-pays. That alone should be sufficient for NYS - or the IRS for that matter.

In my experience, whenever you can prove the BIG ticket items, it increases your credibility and allows the auditor some leeway in allowing some smaller, undocument items. Of course there is no guarantee.