Claiming tax deductions without receipts: Here’s what to know

When the tax season arrives, many people find themselves sifting through a mountain of receipts, desperately trying to prove their business expenses and claim every possible deduction. 

However, there are times that a receipt gets lost, fades, or is never issued in the first place. The good news is that not all is lost. 

While receipts are the gold standard for substantiating deductions, the Internal Revenue Service (IRS) understands that they aren’t always available. 

This introductory guide will help you understand the circumstances under which you can claim tax deductions without receipts and what other forms of documentation you can use to support your claims.

What is an IRS tax deduction?

The purpose of tax deduction is to lower taxable income, which in result reduces the total tax you owe. It also depends on your tax bracket; the higher your bracket, the more you save.

Example: A  $1,000 deduction saves taxpayers with a 22% bracket of $220, while a taxpayer who will fall under a 35% bracket saves more, taking $350.

While a tax credit directly reduces the amount of taxes you owe, a deduction decreases the portion of your income that is taxable. 

You can either use the fixed standard deduction or list your itemized deductions, which can be more advantageous if you have a lot of eligible expenses.

Tax deductions you can claim without a receipt

While a receipt is the most applicable document to prove a business expense, the IRS noted that it is not always present and available.

In some instances, a taxpayer can still claim a deduction without a receipt as long as they have other applicable or “adequate records” to support their claim.

It is a crucial but helpful initiative to maximize deductions even without the physical receipt. You may have held these documents, but you do not know that they can help you in filing deductions.

Here are some standard deductions you may be able to claim without a traditional receipt:

1. Vehicle expenses

Instead of tracking every vehicle-related expense like fuel and repairs, the IRS provides the option of using the standard mileage rate, which allows for a set deduction per business mile traveled. 

The effectiveness of this method depends on maintaining a precise log of your business trips, documenting the date, destination, purpose, and total mileage.

2. Home office deduction

Like virtual assistants that are classified as individual contractors, the use of their personal space to perform remote jobs and for other business purposes can be applied for home office deduction.

The easiest way to calculate this deduction is by setting a flat rate of your own space per square foot. Though it has limitations, you can request this deduction without utility and rent expense receipts.

3. Self-employment taxes

Self-employed taxpayers are accountable for paying both the self-employment and income taxes for Social Security and Medicare.

The good thing is the IRS allows you to file a deduction for personal income tax equivalent to half of your computed self-employment tax.

This particular deduction is automatically calculated and does not require supporting receipts.

4. Charitable contributions

A deduction for cash donations can often be claimed for amounts up to $250, even without a physical receipt. 

It is essential, however, to maintain a record of the contribution, such as a bank statement, a canceled check, or a written acknowledgment from the charitable organization.

5. Retirement plan contributions: 

Contributions made to a traditional Individual Retirement Accounts (IRA) or other designated retirement plans can be subtracted from your taxable income. 

The financial institution responsible for your account will typically furnish a Form 5498, which functions as the official record of your annual contributions.

IRS rules on deductions based on business/entity type

Remember that claiming tax deductions varies depending on your entity type or business structure. 

For example, a self-employed person can deduct health insurance premiums on their personal tax return, but an S corporation claims them on its business tax return.

And unlike self-employed taxpayers who can claim a direct home office deduction, S corporation owners must reimburse themselves for home office costs through an ‘accountable plan.

This method necessitates written records, monthly expense reporting, and receipts. Because of the specific requirements, consulting with a CPA is the best way to ensure the plan is executed correctly.

What other tax documents can you use if you don’t have receipts?

As highlighted, the IRS typically requires an adequate record to support a claim for tax deduction. While a receipt is the top document to prove expenses, it is not the only option.

In cases where you lost a receipt of your transaction, a combination of these documents can help you to verify the expense. 

The strategy is to build a clear and reliable paper trail, linking the purpose of payment to a business or deductible purpose. 

Gather as many alternative forms of documentation as you can to support your claims. Some examples are:

• Canceled checks or bank statements
• Credit card and account statements 
• Purchase, bills, and sales invoices
• Contracts and transaction histories
• Duplicate records from suppliers or vendors
• Calendars showing schedules of travel, client meetings, and business meals
• Cell phone records

Solving tax receipt documentation through digital applications

The era of keeping tax receipts in a shoebox is over. Today, digital tools like scanning apps, accounting software, and cloud storage provide an excellent way to handle tax documents.

By digitizing receipts as you get them, you can build a secure, organized, and searchable record of all your business expenses. 

An advanced digital application also allows taxpayers to snap a photo of a receipt or other adequate documents and automatically categorize, extract key data, and securely store it in the cloud.

This method simplifies claiming deductions and creates an audit-ready paper trail, so your records are always prepared for tax season.