You've kept your business receipts religiously. The dozen file folders you just pulled out, one for each month, that are brimming with restaurant receipts, office supplies receipts, gas receipts and mileage and maintenance receipts give testimony of your most excellent efforts. As you begin sorting them, you start feeling queasy, and a light sheen of perspiration breaks out across your forehead: Older receipts have faded, and now you can't read them! How are you going to justify the legitimate business expenses on your taxes? Don't automatically throw them away: You might be able to salvage their usefulness anyway.
Your Written Explanations
Check to see if your hand-written entries are still legible. You should have scribed on each receipt the reason you ate the food, bought the supplies and the name of anyone you were with and what was discussed. That information will help solidify that the receipt might pertain to a business expense.
If you included a tip at a restaurant, hopefully you noted the original balance and the tip amount separately, along with the name of the server who earned it. If you didn't, the faded receipt proves you purchased something, but odds are fair that the IRS will look askance at it and wish you better luck next year as they disallow the deduction.
However, don't toss the receipt just yet. There may yet be hope.
If you can find the entry on another record, you can supplement that faded receipt's documentation. Did you pay with a credit card? Retrieve the credit card statement for that period and find the entry for the total amount spent on the transaction. You may not be able to deduct the sales tax that's included, but a quick check online can tell your what the sales tax percentage for that type of item in that location was. Subtract that tax from the credit card entry, and that's the cost of the actual item or food you purchased.
If you paid with a bank debit card, find the bank statement for that period. The bank statement entries may be dated a few days after the actual transaction date, for they are registered as they clear your account, not as the funds were claimed by swiping your card. The IRS knows this, so if you can find that particular entry, use that in addition to the faded receipt to justify your business expense deduction.
If that faded receipt was for a cash purchase, the IRS may allow it if your tax history shows no questionable entries and complete accuracy and honesty in the past. Be prepared, however, to justify the inclusion if it's questioned.
Prevention Better that Hustled Cure
As always, it's better to preserve those fading-ink receipts by scanning them into your computer regularly while the printing is still fully legible. Be sure to scan both sides if you include that supplemental information on the reverse side.
Advice regarding back-up records run from emailing yourself those receipts or storing them online in cloud storage facilities. Whichever method you choose to avoid the fading ink syndrome this year, never count on just one back-up method: Use multiple storage facilities or sites to ensure you have all the clarity and the completeness needed to track your money expenditures for your business operations.
Jaye Ryan is a freelance writer who loves writing about responsible financial management and taxes for Octopus Loans.