Acceptable "Receipts" for Tax Audit Purposes

8 Replies

Hi,

Right now I only own one investment property and find myself already spending more time than I would like cataloguing my monthly utility receipts for the property. I deduct these expenses and want to have proof of the expense in the instance of an audit. For the folks that are tax savvy or have been audited, I wanted to know if just submitting an annual statement from the utility providers is acceptable in audit or if I need each individual receipt? In terms of time efficiency and working on growing the scale of my portfolio, I would much rather just print out one sheet a year showing how much I spent on each property for that utility rather than catalog a receipt each month.

Thanks,

Wes

You should keep the receipts and you can save them in a bookkeeping system like quickbooks or Xero.  I recommend holding onto scans of the receipts. An annual statement should suffice just fine. But they want to know that it was paid.

Thanks @Steven Hamilton II

I do track all my transactions in a personal finance software right now (It's just a duplex that I live in so I use my personal accounts). I plan to go to quick books or a more sophisticated system to track finances for properties that are purely "business" in the future with a separate account set. Even if I enter all that info into my software though, it still take a lot more time to catalog and file all the receipts each month so I rather just do it once year if that's "good enough" for regular expenses like utilities. I really appreciate the response!

For some that will be all you need to do; however, if you have the property in an LLC you NEED to have a separate account and need to be keeping a balance sheet and profit/loss statement.

You technically can do it once a year, but it's a better idea to do it monthly for financial reporting purposes.

After getting my receipts, I scan them into PDFs and organize them into property folders.

Example folder structure:

Property - 123 Main St

-- Applications (keep applications on file in electronic format on advice from attorney -- two years is the statute of limitations for discrimination suits)

-- Contractors and Receipts (contains scans of contractor invoices and scanned receipts)

-- Insurance (contains policy declaration pages, invoices, etc.)

-- Pictures (I like before/after pictures, pictures I use for marketing the rentals)

-- Purchase (closing documents, settlement statement)

-- Taxes (property tax bills and receipts)

-- Tenants (information on tenants such as leases, scanned copies of payments)

-- Utilities (utility bills for gas, electric, water, sewer)

Thank you everyone for their contributions!

I know this is an old thread, but I havve a question. What if the I paid the contractors in cash and never got a receipt/invoice?

@Mike Glatzel Ask the contractor to give you another receipt. I try to never pay with cash since a cashed check can go a long way in proving an expense.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here