writing off cash expenses for a rental property

Member since 2019 · 172 posts · 93 votes

say you buy a used $150 stove from some random person on craigslist/offerup or hire a handyman for a $200 and they are taking cash only... is a ad hoc bill of sale enough documentation for these expense write offs to hold up against an IRS audit?

thanks

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Patricia Steiner

Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes

Fun topic...and it's one that affects me as well. Here's what the IRS says: "The IRS requires businesses to keep receipts for all business expenses of $75 and up. Note that if your business is audited, you'll still need to be able to provide basic information about expenses under $75, such as the date of the purchase and its business purpose." Retention of receipts is 3 years.

So cash...here's what was shared with me: "Your supporting documents should identify the payee, the amount paid, proof of payment, the date incurred, and include a description of the item to show that the amount was for purchases."

Then this when it comes to paying handymen/contractors: "If you paid an independent contractor less than $600 over the course of the financial year, you don't need to submit Form 1099-NEC for them."

Hope this helps. And, I just document every expenditure - regardless of amount...just is what it is and it is annoying.

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Patricia Steiner
Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
3y
Fun topic...and it's one that affects me as well. Here's what the IRS says: "The IRS requires businesses to keep receipts for all business expenses of $75 and up. Note that if your business is audited, you'll still need to be able to provide basic information about expenses under $75, such as the date of the purchase and its business purpose." Retention of receipts is 3 years.
So cash...here's what was shared with me: "Your supporting documents should identify the payee, the amount paid, proof of payment, the date incurred, and include a description of the item to show that the amount was for purchases."
Then this when it comes to paying handymen/contractors: "If you paid an independent contractor less than $600 over the course of the financial year, you don't need to submit Form 1099-NEC for them."
Hope this helps. And, I just document every expenditure - regardless of amount...just is what it is and it is annoying.
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Zeb B.
Member since 2020 · 30 posts · 26 votes
3y
For relatively small expenses I think that is fine. The key is to document the expense at the time it happens. You want contemporary records that substantiate these types of things, you don't want to be "remembering" them at the time of the audit.
Contemporary Records means records that are prepared or generated at the same time, or immediately after, the event.
I send myself an email with the details so I have some documentation with a time stamp on it, but there are no hard and fast rules about how you have to document. It is important that the documentation be generated near the time of the transaction rather than a year later. Transactions over $600 have other requirements.
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Bryan MartinBusiness Member
Accountant · Springfield, IL · Member since 2022 · 190 posts · 100 votes
3y
Quote from @Nathan Williams:

say you buy a used $150 stove from some random person on craigslist/offerup or hire a handyman for a $200 and they are taking cash only... is a ad hoc bill of sale enough documentation for these expense write offs to hold up against an IRS audit?
thanks

It's generally a good idea to have a written record of any significant purchases or expenses, especially if they are related to your business or income. In the case of a used stove or hiring a handyman, a written bill of sale or invoice can serve as evidence of the transaction and may be helpful if you need to prove the legitimacy of the expense in the event of an IRS audit.

However, it's important to note that a bill of sale or invoice is not a guarantee that the expense will be allowed as a write-off. The IRS has specific rules and requirements for what expenses can be deducted, and it's up to you to ensure that the expenses you are claiming are eligible.

It's always a good idea to consult with a tax professional or refer to IRS guidelines to determine what expenses you can claim on your tax return. This will help you avoid any potential issues during an audit and ensure that you are in compliance with tax laws.
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