How to prove an expense when there's no receipts:

Hi,

This is my first year as a self-employed person. I moved out to Tbilisi, the Republic of Georgia from Massachusetts in fall of 2006. I did this to be with my fiancé, who is from this country, and to freelance.

I was wondering if I can deduct one of my flights out here as a business start up cost. Another quick question is that I live in the land of no receipts...very informal economy. Taxis aren't licensed, I don't have a formal lease agreement for my home office, everyone pays in cash and its impossible to pay by credit card in most places...What forms of receipts will the IRS accept as legitimate, if I get audited. I have to make up my own receipts.

Thanks so much!
Jennifer


Dear Jennifer,

I have been to Tbilisi. I think Tbilisi men are the sexiest looking men in the world!!

No, you cannot deduct the cost of the move. You could if the reason were job- rather than love-related.

I know how the economy works there. And since receipts are few and far between you will need to keep a complete and extensive journal -- chronologically and categorically -- of all expenses . You will need to a column for "why" or the reason for the expense for some categories. Use either a spreadsheet or Quicken. I recommend Quicken.

You don't say what your self-employed venture is so I can't give you specific examples. Whenever you are in a situation where no receipt is possible but some other "proof" is available, get it --perhaps a postcard, advertisement, menu, anything that can show your "businesslike" approach to your recordkeeping. I think these posts may shed more light on businesslike.

In my book, Self-employed Tax Solutions, I explain which expenses must have receipts and which may be estimated.


Cheers! And enjoy Tbilisi!
June