June,
I am a designer -- interior / furniture / industrial . This is my first time handling my taxes as a 1099, and after reading about my deduction opportunities in your "Designers Dozen: Tax Saving Tips for the Graphic Artist " article, I'm wondering: Do I need physical receipts for every write-off I claim or will my credit card / bank statements suffice?
Rachel -- Brooklyn, NY
Dear Rachel,
You will need paper backup for just about all expenses. Some expenses may be estimated, for instance, if you know that once a month you subway to the Bowery to get something fabricated, then you may estimate that monthly transportation expense. Or if on one or two occasions you lose the receipt for a supply house you regularly purchase from, you may estimate. Certain expenses may not be estimated, like business gifts and meals & entertainment.
Regarding credit card statement versus the actual receipt, there are two areas where statement rather than receipt is a problem. First, you would need to show, for instance, that a Macy's receipt is for a business attache and not for a blouse. The other is how would you total all specific category receipts from your credit card statement? You're going to need to sort receipts into business categories -- supplies, postage, dues, etc. My book Self-employed Tax Solutions has an entire section on easy, audit-proof recordkeeping, that shows how to deal with business expenses on credit card.
You are new to self-employment, you need a lot of information. I recommend you start by reading a short column on my website, like: Is it a deductible business expense?
If you like what you read there, I encourage you to buy a copy of my book, Self-employed Tax Solutions. The book answers many of the most common self-employed questions in the same easy-to-understand style you'll find in my columns.
And more than just answering your taxing questions, the information in Solutions will give you a firm foundation on which to build your solo venture!
I wish you much luck!June
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