Q:

Subject: Online Bill Payment and the IRS

Mr. Kerstetter-

Came across the following statement in an article in the NYT about online bill pay.

"As long as I see that I.R.S. wants a canceled check as proof of payment, I will recommend that people who want to deduct their personal or business expenses pay them by check," advised Eva Rosenberg, publisher of TaxMama.com.

Your thoughts?

Keep fighting the good fight-

A:

I do agree that cancelled checks are the best way to document expenditures.  That is why I have long had battles and refused to work with banks that don't return the actual checks.  I have explained to them that the little pictures of the check-fronts often aren't good enough.  This is especially true when trying to track down how IRS applied a tax payment, a frequent problem.  The tiny tracking numbers are on the backs of the checks.

This is why I have gladly paid my bank (Regions) an extra two dollars each month so they will include my actual canceled checks along with my monthly bank statement.  Many other banks refuse to even make that available, claiming that it's for the customers' convenience, when we all know that it's strictly for theirs.

You can use credit card statements to prove expenses, but you will also have to have a receipt showing the details behind it in order to prove to IRS auditors that it wasn't a personal expenditure.  Eva had an excellent point in the article about not wanting to allow IRS examiners a peek at other things on the credit card statement.  Auditors are notorious for snooping around in things that have nothing to do with the actual examination in a fishing expedition for other items they can hassle the taxpayer about.

Thanks for passing that along.

Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/18/2005 11:06:00 PM Send this post: